The transport, storage and communications sector grew by 1.2% year-to-date in 2017 and contributed 0.1 percentage points to GDP growth in the year. The sector represented 9.4% of gross value added for the year to date in 2017.
South Africa’s modern and extensive transport and logistics system, which is coordinated by the Department of Transport, plays an important role in the national regional economy, transporting freight for export and domestic use, as well as enabling the movement of people within and between cities and rural areas. The transport system comprises airports, sea ports, roads, rail and public transport networks. Increased activity in land transport, in particular freight and passenger rail transportation, induced the expansion in the transport section over the last quarter.
Transnet, the horizontally integrated state-owned company, plays a central role in freight transportation through its rail, port and pipeline operations. PRASA provides both intercity and intra-city rail services. SANRAL is responsible for the upgrading and expansion of the national road system while provincial and municipal governments are responsible for secondary roads. See “Public Finance—Public Enterprises.”
The South African road network and national road network comprise approximately 750,000 km of roads and 21,403 km of roads, respectively. The national and local railway network consists of approximately 20,824 km of track and is divided into ten geographical areas under the control of Transnet Freight Rail (TFR). The Passenger Rail Agency of South Africa (PRASA) is planning to invest R175 billion in new infrastructure over the next ten years and of this, PRASA expects it will spend R51 billion to procure 600 trains. A total of 580 of these trains will be manufactured in South Africa.
The commercial airport infrastructure in South Africa consists primarily of nine airports which are owned and operated on a commercial basis by the Airports Company of South Africa Limited (ACSA). South Africa’s three major international airports are Johannesburg’s OR Tambo, Cape Town International and Durban’s King Shaka.
Transnet, a public company wholly owned by the Government, is the custodian of rail, ports and pipelines, responsible for delivering reliable freight transport and handling services. Transnet National Ports Authority (National Ports Authority) operates as a landlord port authority, managing, controlling and administering the South African port system on behalf of the state. The National Ports Authority owns and manages the eight ports within South Africa and its tariffs are regulated by the National Ports Regulator. Approximately 98% of South Africa’s exports are conveyed by sea. Transnet Port Terminals, along with some private sector players, is responsible for the operations at ports
The pipeline network is responsible for the transport of more than 85% of refined fuel and gas products. The business is regulated by the National Energy Regulator of South Africa (Nersa).
The communications sub-sector consists of postal services and telecommunications services. Growth in the real output of the telecommunications subsector continued to benefit from technological innovations and attractive data promotions.
_________________
Notes:
| (1) | Nine months ended September 30, 2017. |
| (2) | Employment in the formal non-agricultural sectors. |
| (3) | QLFS as at March 31, 2016. Starting in January 2015, the estimates are based on a new master sample, which impacts comparability with previous periods. |
Source: Stats SA.
The national government has placed job creation and skills development at the heart of its policies, by promoting an environment that is conducive to private sector growth and investment, with future legislation and regulation being subject to a socio-economic impact assessment before being passed, and microeconomic reform as well as by directly impacting employment levels through public sector hiring and targeted job-creation programs. Some of these polices are the following:
| · | The Employment Tax Incentive which aimed to incentivize firms to employ young inexperienced workers, while providing younger workers with work experience to improve the probability of later employment. Initial impact analysis suggests a small but positive impact. The Incentive has been extended to February 2019. |
| · | The Expanded Public Works program (EPWP) is one of government’s short-to-medium term programs aimed at providing short-term jobs and training for the unemployed. It is a national program covering all spheres of government and state-owned enterprises |
| · | The National Skills Development Strategy (NSDS) guides skills development in South Africa and seeks to ensure that the labor market is better able to cope with developmental challenges such as poverty, inequality and unemployment through responsive education and training. |
Education, skills, employment and unemployment
There is a positive correlation between skills levels (using educational attainment as a proxy) and employment. Individuals with lower skills levels represent the majority of the unemployed. As at September 30, 2017, narrow unemployment stood at 32.3% for workers with less than complete secondary education, while it falls to 28.7% for workers with completed secondary education and 12.9% for workers with technical or academic qualifications beyond secondary education.
Education
Education is one of the National Government’s priority areas. This prioritization is reflected in the total government expenditure on education – at 19.8% of consolidated government expenditure in fiscal year 2016/17, South Africa’s total expenditure on education lies in the upper part of the 15% to 20% threshold as set by the Education for All initiative in 2008.
The NDP aims to ensure that the education system has clear linkages between schools, FET colleges, universities and other education and training providers. According to Education Statistics 2014, published in May 2016 by the Department of Basic Education, the South African education system had 13.1 million students, 448,105 educators and 30,500 schools, of which 1,681 were independent schools. With enrollment and gender parity virtually achieved, particularly at primary school level where the gross enrolment ratio is 97 for girls and 100 for boys, the focus is on improving the quality of education, rather than access. Improving learner performance in literacy and numeracy is central to the overall improvement in education outcomes at all levels.
In 2004, the national government introduced the Dinaledi Schools, which channel additional resources to 500 disadvantaged schools to increase the quality of education and student performance with regards to mathematics and science. A dedicated funding stream for Dinaledi Schools in the form of a conditional grant was introduced in fiscal year 2011 with an initial allocation of R70 million; increasing to R116 million in fiscal year 2015, to further strengthen this program. This grant was replaced by a Maths, Science and Technology grant in 2015/16 which expanded the scope to include Technology and it is not limited to Dinaledi schools anymore. The initial allocation of R347 million in 2015/16 increases to R408 million in 2019/20.
To address the impact of poverty on educational opportunities, a “no-fee schools” policy was introduced in 2007 that ensured that the poorest 40% did not have to pay school fees. According to the 2014 Budget Review, 60% of schools do not charge fees, up from 40% five years ago. These “no-fee schools” receive additional resources to provide the necessary learner and teacher support materials. In 2007, five million learners had access to free education, which, by 2014, had risen to 8.8 million.
The National School Nutrition Program (NSNP) provides daily meals to approximately 9 million learners at 19,800 schools. The NSNP is funded by means of a conditional grant, and is allocated R20 billion between 2017/18 and 2019/20, with the aim of enhancing the learning capacity of poor students by providing them with a nutritious meal every school day.
A safe and secure learning environment is a critical element to improving the quality of learning and teaching. To this end, the school infrastructure backlogs grant and the education infrastructure grant to provinces are allocated R40 billion between 2017/18 and 2019/20. This complements funds already in the baselines of provincial education departments for school infrastructure.
Higher education
Access to university education has steadily increased, with enrollment up from 837,776 in 2009 to 1,132,422 in the 2015 academic year. One of the key outputs identified under this priority outcome is to specifically increase the number of science, engineering and technology graduates because of the contribution that these graduates can make to the economic growth that the country seeks. Additional grant funding is provided to those universities that are able to increase enrollment and graduation numbers in these key areas.
FET Colleges are also recognized as primary sites for skills development. Quality is also a concern at these colleges and the DHET has committed to implement measures that aim to address poor performance at these FET Colleges. The Sector Education and Training Authorities (SETAs) and the National Skills Fund, the key workplace skills development agencies, intend to spend R53.8 billion between 2017/18 and 2019/20 on a range of skills development programs.
Urgent reform of the financing of higher education – and particularly university education – will take place over the medium term, to ensure that the poor are also able to access opportunities at universities and FET Colleges. In the 2017 MTEF, government allocated R7.3 billion to fund the increase in fees at higher learning institutions for the 2017 academic year, up to a maximum of 8%, for students from households earning up to R600,000 per year. Significant top-ups were also made to NSFAS.
Trade Unions and Labor Disputes
The Labour Relations Act promotes collective bargaining through, among other things, protecting organizational rights for unions and the right to strike. Trade union representation is an accepted fact of industrial practice in South Africa. Almost all sectors of the economy, including the public service, have representative unions which engage employers over issues affecting their workforce.
Union density serves as an indication of the strength and potential influence of unions in the economy. South Africa’s union density is quite high. As at December 2017, the number of registered trade unions was 191.
Most trade unions in South Africa are organized in federations, of which there are 24 registered with the Department of Labour as of April 2017. The largest federation is the Congress of South African Trade Unions (COSATU), which had 20 affiliates and approximately 2.2 million members as of 2012. However, following the official expulsion of the National Union of Metal Workers South Africa (NUMSA) in 2014, it is estimated this number has reduced by around 350,000. COSATU includes the National Union of Mineworkers, the South African Clothing and Textile Workers Union, the Food and Allied Workers Union and the National Education, Health and Allied Workers Union. Other significant federations include the Federation of Unions of South Africa and the National Council of Trade Unions.
The Labour Relations Act of 1995 (Labour Relations Act) promotes collective bargaining through, among other things, protecting organizational rights for unions and the right to strike as well as setting out the procedures for instituting legal strikes, introducing special requirements for the use of secondary strikes, picketing, protest action and replacement labor and protecting an employer’s right to have recourse to lockout. The right to strike is contingent on the exhaustion of dispute procedures and on the condition that the industry does not provide essential services. The Labour Relations Act also establishes a framework for the formation of bargaining councils to determine matters within the public sector and each industrial sector, the criteria for which are to be established by the National Economic Development and Labour Council. When employers and employees cannot agree on the formation of a bargaining council, a statutory council may be formed.
The Labour Relations Act permits the use of privately negotiated dispute resolution procedures and also encourages a centralized dispute resolution mechanism. The Commission for Conciliation, Mediation and Arbitration (CCMA) is responsible for attempting to resolve industrial disputes through conciliation and mediation. If these attempts fail, the CCMA may determine the dispute by arbitration or the parties may refer the dispute to the Labour Court unless it falls into the categories that must be resolved finally by arbitration and may not be referred to the Labour Court. The Labour Court is comprised of both trial and appellate divisions and, together with the High Court of South Africa and Supreme Court of Appeals, has jurisdiction over all matters referred to it under the Labour Relations Act.
The Labour Relations Amendment Act in 2014 gave legal power to the Commission for Conciliation, Mediation and Arbitration (CCMA) to approach negotiation parties to assist in resolving issues. It is expected that this will help avoid disruptions to the economy. The CCMA has already demonstrated success in this regard, and has cut the duration of arbitration proceedings by more than 75% since 2003. The CCMA was heavily involved in the private security sector negotiations since violent strikes in 2005/06, which has avoided industrial action in its wage negotiations this year.
The following table shows the number of man-days lost as a result of strikes and work stoppages for the periods indicated.
| Man-Days Lost to Strikes and Work Stoppages | | Number of Man
Days Lost |
| Year | | |
| | | |
| 2006 | | 2,900,000 |
| 2007 | | 12,900,000 |
| 2008 | | 991,000 |
| 2009 | | 2,900,000 |
| 2010 | | 14,600,000 |
| 2011 | | 6,200,000 |
| 2012 | | 3,500,000 |
| 2013 | | 5,200,000 |
| 2014 | | 11,800,000 |
| 2015 | | 600,000 |
| 2016 | | 550,000 |
2017(1) | | 370,000 |
_________________
Note:
(1) Up to September 30, 2017.
Source: The Wage Settlement Survey Quarterly Report, Andrew Levy Employment Publications.
Industrial action is well below 2010 levels. The number of working days remained relatively low at 370,000 for the nine months ended September 30, 2016, compared to 500,000 for the same period in 2016 and below a historic ten-year average of 5.9 million working days. The major strike trigger was wages, accounting for 86% of working days lost and 68% of the number of strikes in September 2017. Major strikes were avoided in 2017 when the Metals and Engineering sector settled in August 2017, and the Coal sector reached a centralised bargaining agreement in June 2017.
Labor Legislation
Since 1994, significant legislation has been adopted designed to improve labor relations, the quality of employment, skills development and employment equality. South African labor legislation promotes equity in employment and prohibits discrimination in the workplace on the grounds of race, gender, sex, pregnancy, marital status, family responsibility, ethnic or social origin, color, sexual orientation, age, disability, religion, HIV status, conscience, belief, political opinion, culture, language or birth.
To realize these objectives, legislation requires all employers to take steps to end unfair discriminatory practices and policies. In addition, legislation mandates designated employers to prepare and implement employment equity plans and to report to the Department of Labour on their progress in ending unfair discriminatory practices and in promoting equity.
| · | Post-1994, the following acts were promulgated to govern labor market activity and these include: |
| · | the Compensation for Occupational Injuries and Diseases Act of 1993, which regulates safety and health matters in the workplace; |
| · | the Labour Relations Act of 1995, which applies to all workers and employees and aims to promote economic development, social justice, labor peace and democracy in the workplace. It affords workers protection in line with international standards; |
| · | Basic Conditions of Employment Act of 1997, which applies to all workers and regulates leave, working hours, employment contracts, deductions, pay slips and termination; |
| · | the Employment Equity Act of 1998, which protects workers and job seekers against unfair discrimination and provides a framework for the implementation of affirmative action; |
| · | the Skills Development Act of 1998 and Skills Development Levies Act of 1999, which aims to develop the skills in the South African labor force as well as outlines how employers should contribute to the NSF; |
| · | the Unemployment Insurance Act of 2001 and Unemployment Insurance Contribution Act of 2002 outlines the security available to workers when they become unemployed as well as how to contribute to the UIF Contribution Fund; and |
| · | The Employment Services Act of 2014 came into effect in August 2015. It provides for the creation of a Public Employment Service, and will provide state assistance to unemployed job seekers. Assistance will take the form of improved matching and placement of work seekers with opportunities, as well as through training. This act repeals the Employment Services provisions contained in the Skills Development Act. |
The Department of Labour has enacted amendments to the Basic Conditions of Employment Act, Employment Equity Act and Labour Relations Act to update and improve legislation periodically. The amendments to the Labour Relations Act deal with two main issues. First, offering more protection to non-standard employment (temporary workers, fixed and part-time contract workers). Temporary work is extended to three months to allow for genuine temporary work. For a fixed term contract beyond three months, the worker is entitled to be treated equally to a permanent employee. Both the employment service providers and their clients have joint and several liability for non-compliance. There must also be sufficient justification for fixed contract rather than absorbing workers into the permanent workforce. Part-time workers should also be treated on the whole not less favorably than comparable full-time employees, including access to training and skills development. Second, the amendments seek to enable a better dialogue in difficult wage negotiations and reduce the likelihood of disputes disrupting the economy; the CCMA is given legal power to approach negotiating parties to assist in resolution.
The amendments to the Basic Conditions of Employment Act include: the extension of the scope of the prohibition and regulation of work by children; empowering the Minister of Labour to regulate a broader range of matters in sectoral determinations (minimum wages for sectors where workers are particularly vulnerable); simplifying the Department of Labour’s ability to take enforcement steps against non-compliant employers (and to access the Labour Court for this purpose); and increasing penalties and maximum sentences for non-compliance.
The amendments to the Employment Equity Act clarified who qualifies as a member of the “designated groups”, and reduced the number of factors considered when assessing compliance, as well as increased the penalties for non-compliance. Regulations published under the Act provide good practice for determining equal pay for work of equal value.
The Amendments to the Labour Relations Act is expected to be presented to parliament by the end of the year. An agreement on codes of good practice should help to normalise employer/ employee relations, build trust and increase propensity to hire.
Nedlac and its social partners have approved the introduction of a national minimum wage of R20 an hour, to be implemented from no later than May, 1 2018. The National Minimum Wage Bill was gazetted on November 17,2017.
Benefits
Although the National Government has not established a comprehensive welfare system of the type found in many industrialized countries, it does maintain a variety of social benefit schemes relating to, among other things, compensation for occupational injuries and diseases, occupational health and safety, unemployment insurance, old age, disability and survivor benefits, child support grants, unemployment, sickness and maternity benefits, worker injury benefits and various health care benefits targeted to certain persons. Other programs provide for a developmental social welfare program to ensure, among other things, delivery of benefits to the poorest South Africans and improved social insurance. These programs are funded largely from budgetary allocations and through improved efficiency of delivery of services, subsidies or payments. South Africa is considering the introduction of a comprehensive social security system.
Prices and Wages
Consumer price inflation moderated to within the target band, averaging 5.5% year-on-year, in the first nine months of 2017 compared to 6.3% in the first nine months of 2016, and 6.3% in the year 2016. As in 2016, food and transport inflation were major drivers of overall inflation. In addition, the rising cost of education has been a major contributor of inflation in 2017.
Food inflation averaged 7.6% in the first nine months of 2017 down from 10.4% in the corresponding period in 2016 as the drought which began in 2015 saw prices of bread & cereals, vegetables and fruits record double-digit growth in 2016 before declining to record several months of deflation by 3Q 2017. Meat prices, however have shown double-digit growth for most of 2017.
Transport inflation rose from an average of 4.0% year-on-year in the nine months ended September 2016, to 5.0% in the same period in 2017, with petrol price inflation increasing from 1.1% year-on-year to 6.6% in the respective periods. The cost of education rose from an average of 5.6% year-on-year in the first nine months of 2016 to 6.5% during the same period in 2017, driven mainly by higher primary and secondary education costs.
Core inflation, which represents the long-run trend of the price level and excludes temporary shocks, moderated from an average of 5.6% year-on-year over the first nine months of 2016 to 4.9% in the same period in 2017. Most upward pressure in core inflation continues to be generated by insurance, housing rentals, water and vehicle purchases. Administered prices increased from 5.3% year-on-year in the first nine months of 2016 to 5.7% in the corresponding period in 2017 driven by inflation of petrol, electricity and water.
Looking ahead, CPI inflation is expected to remain below the 3-6% target ceiling in 2018 due to lower food inflation and moderate wage increase expectations. Upside risks to the inflation outlook stem from higher import-price inflation, particularly if monetary policy in Europe and the US tightens putting additional pressure on the exchange rate, and political event risks.
Producer price inflation for final manufactured goods has decreased to an average of 4.8% in the nine months ended September 2017 from 7.2% in 2016 owing to lower inflation in food products, metals, machinery, equipment and computing equipment and transport equipment.
Growth in average nominal remuneration per worker in the formal non-agricultural sectors of the economy amounted to 5.8% in 2016, and to 6.6% in the first quarter of 2017.
Increases in average remuneration per worker moderated to 5.2% in the private sector, but increased to 10.7% in the public sector through the first quarter of 2017.
Nominal remuneration increases were below the upper limit of the inflation target range in the first three quarters of 2017 in: manufacturing (4.7%), construction (3.4%), transport (4.6%) and financial services (5.0%). Remuneration growth was above the target range in the mining sector (7.7%), utilities (8.8%) and the wholesale, retail and trade sector (6.6%)
According to Andrew Levy Employment Publications, the average level of settlement for the nine months ending September 30, 2017 was 7.6% compared with 7.5% during the same period in 2016 and the overall average of 7.5% in 2016.
Productivity growth increased to 1.1% in the first quarter of 2017 on a year-on-year basis, but was down 0.3% on a q/q basis, following year-on-year increases of 0.2% and 0.8% in the preceding two quarters. Average wage settlements of 7.6% in the nine months ended September 2017 were higher than average CPI inflation of 5.5% between January and September 2017. Continued high wage settlements may have reduced the incentive of companies to create new jobs. In the past, employment growth has been associated with strong GDP growth and moderate growth in real earnings (see table below).
| Prices and Wages | | For the year ended December 31, | | | As of September | |
| | | 2012(5) | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017(3) | |
Consumer Prices(1) | | | 78.4 | | | | 82.9 | | | | 88.0 | | | | 92.0 | | | | 97.83 | | | | 102.54 | |
| Percentage change from prior year | | | 5.62 | % | | | 5.76 | % | | | 6.09 | % | | | 4.58 | % | | | 6.34 | % | | | 5.5 | % |
Production Prices(4) | | | 77.41 | | | | 82.1 | | | | 88.1 | | | | 91.31 | | | | 97.78 | | | | 101.8 | |
| Percentage change from prior year | | | | | | | 6.00 | % | | | 7.40 | % | | | 3.61 | % | | | 7.08 | % | | | 4.79 | % |
| Remuneration per worker | | | | | | | | | | | | | | | | | | | | | | | | |
| At current prices | | | 7.7 | % | | | 7.2 | % | | | 6.6 | % | | | 7.0 | % | | | 5.8 | % | | | | |
| At constant prices | | | 2.0 | % | | | 4.2 | % | | | 2.0 | % | | | 4.6 | % | | | -0.4 | % | | | | |
_________________
Notes:
(1) December 2016 = 100.
(2) Year on year change Q1 2017 to Q1 2016.
(3) The average values over the first nine months.
(4) 2016 = 100.
(5) Due to a rebasing of the numbers in 2012, certain figures prior to 2012 are not available.
Source: SARB, Stats SA.
MONETARY AND FINANCIAL SYSTEM
The South African financial system consists of banks and non-bank financial institutions such as investment funds, portfolio management companies, securities investment firms, insurance companies, development funding institutions and pension funds.
The South African Reserve Bank (SARB)
The SARB is the central bank of South Africa, with its head office in Pretoria and branches in, Cape Town, Durban and Johannesburg. The Constitution established the SARB as an independent central bank, subject only to acts of Parliament and to regular consultation with the Minister of Finance. The principal responsibilities of the SARB include, among others: formulating and implementing monetary policy; issuing banknotes and coins; acting as banker to the National Government; regulator for banks licensed under the Banks Act of 1990; providing facilities for the clearing and settlement of claims between banks; acting as custodian of the country’s gold and other foreign reserves; acting as a lender of last resort; conducting open-market operations for purposes of the implementation of monetary policy; supervising large primary, secondary and tertiary co-operatives; collecting, processing and interpreting economic statistics and related information; and formulating and implementing exchange control policies in cooperation with the Minister of Finance and the National Treasury. Recently, the Financial Sector Regulations Act established the Prudential Authority (PA) as a juristic entity operating within the administration of the SARB. The objective of the PA is to: promote and enhance the safety and soundness of market infrastructures, as well as financial institutions that provide financial products and securities services; protect financial customers against the risk that those financial institutions may fail to meet their obligations; and assist in maintaining financial stability. This authority, however, has not yet been fully implemented.
Unlike many other central banks, shares in the SARB are held by private shareholders, with no shares held by the National Government. The SARB was listed on the JSE from its inception in 1921 until May 2002, when it was de-listed. Currently, approximately 758 shareholders, including companies, institutions and individuals, hold SARB shares. No single shareholder may hold more than 10,000 shares. Dividends are paid to shareholders out of net profits at a rate of 10.0% per annum of the nominal value of the shares. After certain provisions, 10.0% of the SARB’s surplus in any year is paid into a statutory reserve fund, and the balance is paid to the National Government.
The SARB is managed by a 15-member board of directors who hold office for a period of three years, which can be renewed for a further two terms of three years. The Governor and three Deputy Governors of the SARB are appointed by the President for five-year terms. President Zuma appointed Mr. Lesetja Kganyago as Governor of the SARB with effect from November 9, 2014. Of the remaining 11 directors, four are appointed by the President, with the remaining seven elected by the SARB’s shareholders. The National Government therefore appoints persons controlling most of the effective votes to the board of directors of the SARB.
The South African Reserve Bank Act was amended in 2010 (through Amendment Act No. 4 of 2010) to provide mechanisms to ensure that shareholders contribute to the functioning of the SARB without adversely influencing the SARB’s decision-making capabilities through group or block formations.
Monetary Policy
The main objective of the SARB’s monetary policy has been the pursuit of price stability. This policy contributes to the broader macroeconomic policies of the National Government by creating a stable financial environment and improving the standard of living of all inhabitants of the country. The SARB does not have fixed exchange rate targets and allows the Rand to float freely against international currencies.
In 2000, an inflation-targeting monetary framework replaced the SARB’s previous approach to monetary policy-making. The previous approach involved the public announcement of guidelines for growth of the money supply in general, supplemented by regular, wide-ranging assessments of economic conditions and reports on the outlook for inflation. The current inflation-targeting framework is a broad-based strategy for achieving price stability, centered on an analysis of price developments, and is characterized by a publicly announced inflation target range (currently 3.0-6.0%). Monetary policy decisions are guided by the deviation of the expected rate of increase in headline CPI from that target. An important factor in determining monetary policy is the forecast generated by the SARB’s macroeconomic models, although monetary policy is not decided mechanically according to these forecasts, nor are policymakers obliged to ensure inflation is permanently within the target range. Rather, the framework includes a degree of flexibility, permitting temporary departures of inflation from the target in the event of shocks (such as oil price movements).
In response to the global financial crisis and subsequent weak global recovery, the repurchase rate was lowered from a peak of 12.0% in 2008 to 5.0% by mid-2012. Policy reversed direction in January 2014, when the repurchase rate was raised from 5.0% to 5.5%, marking the beginning of an interest rate tightening cycle. The policy change occurred against the backdrop of a deterioration in the inflation forecast, which showed an extended breach of the upper target band starting in the second quarter of 2014. The primary cause of the deteriorating outlook was Rand depreciation, driven by lower commodity prices as well as expectations of a somewhat less expansionary monetary policy stance by the US Federal Reserve.
At the July 2014 meeting, the MPC decided to raise the repurchase rate again, to 5.75%, reflecting a persistently unfavorable inflation outlook. In the following months, however, an unexpected collapse in global oil prices lowered inflation markedly, permitting a pause in the hiking cycle. This pause lasted until July 2015, by which point it was clear the deflationary effects of lower oil prices would be temporary. Accordingly, the MPC decided to continue on its path of gradual policy normalization, raising the repurchase rate by 25 basis points, followed by an additional 25 basis point increase at the November 2015 meeting, bringing the repurchase rate to 6.25%. During this time, South Africa experienced a series of shocks which caused the inflation outlook to deteriorate further. The exchange rate of the Rand depreciated abruptly in December and January, to an all-time nominal low, owing both to domestic factors (particularly the removal of finance minister Nhlanhla Nene) and international developments (chiefly volatility in China). Furthermore, the onset of a severe drought in the southern African region prompted upward revisions of the food inflation forecasts. Facing the prospect of a prolonged breach of the inflation target range, the MPC increased policy tightening, increasing the repurchase rate by 50 basis points to 6.75% per annum as of January 29, 2016, and by a further 25 basis points to 7.0% from March 2016. These changes brought the cumulative increase since the start of the tightening cycle in early January 2014 to 200 basis points.
In subsequent months, the inflation forecasts began improving again. The exchange rate recovered partially from its early 2016 lows, while renewed rains promised more moderate in food prices. Domestic growth continued to slow, however, in an environment of declining household and business confidence marked by reduced investment and consumer spending. In these circumstances, the MPC indicated that its tightening cycle was likely at an end, subject to data outcomes. Over the first half of 2017, the flow of data indicated inflation was falling somewhat faster than expected, due chiefly to declining prices of imported goods. Furthermore, economic growth was lower than expected, with the economy falling into a technical recession during the last quarter of 2016 and the first quarter of 2017. Given these developments, the MPC decided to lower the repurchase rate by 25 basis points in July 2017, the first rate cut since 2012. The MPC has nonetheless been constrained by two factors in its ability to lower rates further. First, there have been persistent risks of inflation coming out higher than forecast, chiefly due to the possibility of additional exchange rate depreciation in response to fiscal policy challenges as well as domestic political uncertainties. Second, inflation expectations have remained close to or above 6.0%, whereas the MPC would prefer to see them anchored more comfortably within the target range. In these circumstances, the policy stance has been extremely data dependent, rather than following a clear easing or tightening cycle, with the repurchase rate remaining unchanged at both the September and November 2017 meetings.
In its role of implementing monetary policy, the SARB monitors and influences conditions in the South African money and credit markets and affects interest rates, growth in lending and growth of deposits. The SARB uses open market operations to manage the amount of liquidity available to banks on a weekly basis in repurchase transactions. The interest rate for such repurchase transactions is set by the SARB’s MPC and has a significant impact on all short-term interest rates in the economy. The monetary policy stance is decided at the bi-monthly meetings of the MPC. There exists, however, a continuous process of review that takes new information and developments into consideration.
Open market operations entail the buying and selling of securities by the SARB in the open market in order to regulate the conditions in the money market or the level and pattern of interest rates. By injecting or absorbing funds through purchases and sales of securities, the SARB may increase or decrease liquidity in the banking system. Although these transactions are primarily undertaken to achieve long-term monetary objectives, a further objective may be to stabilize temporary money-market fluctuations.
The SARB may purchase and sell National Government securities for the SARB’s own account, providing it with an effective means of influencing money market liquidity. Other techniques used by the SARB to influence liquidity include purchasing securities outright, varying the amount of National Government bills offered at tender each week, allocating National Government deposits between the SARB and private banks, issuing SARB debentures and entering into foreign exchange swaps with banks.
Currently, nine primary dealers make markets in government paper, five of which are domestic banks and four of which are international banks. Since its appointment of primary dealers in 1998, the SARB no longer acts as an agent for the National Government in buying or selling its securities.
During 2004 the SARB conducted a review of its money-market operations, which were last reviewed in September 2001. As a result, on May 25, 2005, following extensive consultations with market participants, the SARB implemented several changes to its refinancing operations with three aims: to streamline the SARB’s refinancing operations to make them simpler and more transparent; to encourage banks to take more responsibility for managing their own individual liquidity needs in the market; and to promote a more active money market in South Africa. These changes include, among other things, the announcement of an estimate of the average daily market liquidity requirement by the SARB and the estimated range within which the daily requirement is expected to fluctuate in the coming week on the Wednesday morning prior to the main weekly repurchase auction, and the introduction of standing facilities (previously referred to as final clearing or reverse repurchase tenders) at a spread of 50 basis points above or below the prevailing repurchase rate to accommodate banks with short or long liquidity positions.
However, the central feature of the SARB’s operational arrangements – the conduct of repurchase auctions on Wednesdays, with one-week maturity at a repurchase rate fixed at the level announced by the MPC – remains unchanged.
Before the introduction of the changes to the SARB’s refinancing operations, the accommodation amount provided at the main weekly repurchase auction was stable at around R13 billion, which was also the approximate level of the average daily liquidity requirement of the private sector banks. Thereafter, the amounts on offer at the weekly main refinancing auctions varied, with generally higher levels around month‑end and lower levels towards the middle of the month. In order to even out the banks’ end-of-day positions, standing facilities and cash reserve accounts were utilized.
Following the evening-out of the oversold forward foreign exchange book in February 2004, the SARB continued to increase its foreign exchange reserves through the measured buying of foreign exchange from the market, thereby creating Rand liquidity. The banks’ required cash reserve balances with the SARB rose considerably in September 2004, as vault cash was no longer allowed as part of qualifying cash reserves due to the phase-out of vault cash concessions, which started in September 2001.
The outstanding amount and composition of interest-bearing instruments utilized by the SARB were changed to drain liquidity from the money market. Debentures with a 56-day maturity were first issued on December 1, 2004, and 56-day reverse repurchase transactions were first conducted on March 24, 2005.
The outstanding amount of South African Government bonds in the SARB monetary policy portfolio amounted to R7.5 billion nominal loans as at October 2017. This followed an agreement between the National Treasury and the SARB on October 20, 2003, which allowed the SARB to restructure and shorten the average maturity of interest-bearing government bonds held in its monetary policy portfolio by conducting cash-neutral switch auctions.
The following table sets forth the rate at which the SARB provided liquidity to banks as of each month-end indicated.
Repurchase Transaction Rate
| 2016 | | (%) | |
| January | | | 6.75 | |
| February | | | 6.75 | |
| March | | | 7.00 | |
| April | | | 7.00 | |
| May | | | 7.00 | |
| June | | | 7.00 | |
| July | | | 7.00 | |
| August | | | 7.00 | |
| September | | | 7.00 | |
| October | | | 7.00 | |
| November | | | 7.00 | |
| December | | | 7.00 | |
| 2017 | | (%) | |
| January | | | 7.00 | |
| February | | | 7.00 | |
| March | | | 7.00 | |
| April | | | 7.00 | |
| May | | | 7.00 | |
| June | | | 7.00 | |
| July | | | 6.75 | |
| August | | | 6.75 | |
| September | | | 6.75 | |
| October | | | 6.75 | |
| November | | | 6.75 | |
| December | | | 6.75 | |
Source: SARB.
In May 2007, the SARB began to accept certain parastatal bonds in its repurchase auctions, thereby extending the range of securities which may be used as collateral in the refinancing system. This included a selection of bonds included in the All Bond Index, as determined by the Bond Exchange of South Africa Limited (BESA), excluding those issued by commercial banks. The added securities do not qualify as liquid assets in terms of the Banks Act. The table below lists the assets which were added as eligible collateral. However, at the end of August 2010, the SARB implemented certain changes to its monetary policy operational procedures, including the phasing out of parastatal bonds included in the All Bond Index as eligible collateral in the SARB’s refinancing operations. As a result, with effect from March 1, 2011, these bonds were no longer accepted as collateral.
Additional securities accepted in repurchase auctions Rand denominated
| Assets previously and still included as eligible collateral | |
| Government bonds | |
| Land Bank bills | |
| Separate trading of registered interest and principal of securities (STRIPS) | |
| SARB debentures | |
| Treasury bills | |
| | |
| Assets which were added from May 23, 2007 but which were phased out with effect from March 1, 2010 | |
| DBSA (DV07) | |
| Eskom Holdings Ltd. (ES09, E170, ES33) | |
| SANRAL (SZ25) | |
| Transnet Ltd. (T011) | |
| Trans-Caledon Tunnel Authority (WS03, WS04) | |
Source: SARB.
In August 2010, further changes to the monetary policy operational procedures of the SARB were made. These included the use of longer-term foreign exchange swaps with maturities of up to 12 months as an instrument to manage money market liquidity more effectively. The consequence of conducting longer-term foreign exchange swap transactions to drain liquidity from the market is that the SARB reflects an overbought forward position on its monthly releases of official gold and foreign exchange reserves. In addition, the estimated ranges of the weekly liquidity requirement were discounted and the spread between the rates for standing facilities and the repurchase rate was widened from 50 basis points to 100 basis points below and above the prevailing repurchase rate.
The SARB introduced a new liquidity management strategy in August 2013 designed to ensure broad alignment between the money market shortage and underlying conditions in the money market. The strategy entailed a gradual increase in the money market shortage to reflect the growth trend in notes and coin in circulation outside the SARB as well as the required cash reserve holdings of commercial banks, thereby enhancing the robustness of the monetary policy implementation framework. The increased usage of foreign exchange swaps by the SARB coincided with the implementation of the strategy as a measure to manage the impact of short-term fluctuations in notes and coin on the money market shortage. Since September 2016, the SARB has for operational reasons adjusted its liquidity management strategy and managed the money market shortage around the R56.0 billion level.
The following table sets forth the money supply (M1A, M1, M2 and M3) of South Africa during the periods indicated.
Money Supply
| | | As of December 31, | | | As of Sep 30, | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | Rand (million) | |
| Coin and banknotes in circulation | | | 81,042 | | | | 87,014 | | | | 94,193 | | | | 101,053 | | | | 107,573 | | | | 108,338 | |
| Check and transmission deposits | | | 495,991 | | | | 549,323 | | | | 589,602 | | | | 657,190 | | | | 702,822 | | | | 727,539 | |
Total: M1A(1) | | | 577,033 | | | | 636,337 | | | | 683,795 | | | | 758,243 | | | | 810,395 | | | | 835,877 | |
Other demand deposits(2) | | | 458,109 | | | | 495,702 | | | | 557,477 | | | | 670,265 | | | | 796,516 | | | | 816,997 | |
| | | As of December 31, | | | As of Sep 30, | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | Rand (million) | |
Total: M1(3) | | | 1,035,142 | | | | 1,132,039 | | | | 1,241,272 | | | | 1,428,508 | | | | 1,606,911 | | | | 1,652,874 | |
Other short- and medium-term deposits(4) | | | 833,908 | | | | 917,655 | | | | 985,272 | | | | 1,013,017 | | | | 994,290 | | | | 1,029,903 | |
Total: M2(5) | | | 1,869,050 | | | | 2,049,694 | | | | 2,226,544 | | | | 2,441,525 | | | | 2,601,201 | | | | 2,682,778 | |
Long-term deposits(6) | | | 504,390 | | | | 462,557 | | | | 467,355 | | | | 534,382 | | | | 555,346 | | | | 633,828 | |
Total: M3(7) | | | 2,373,439 | | | | 2,512,251 | | | | 2,693,899 | | | | 2,975,907 | | | | 3,156,546 | | | | 3,316,606 | |
_________________
Notes:
| (1) | Notes and coins in circulation plus check and transmission deposits of the domestic private sector with monetary institutions. |
| (2) | Demand deposits (other than check and transmission deposits) of the domestic private sector with monetary institutions. |
| (3) | M1A plus other demand deposits held by the domestic private sector. |
| (4) | Short-term deposits (other than demand deposits) and medium-term deposits (including all savings deposits) of the domestic private sector with monetary institutions, including savings deposits with, and savings bank certificates issued by the Postbank (a division of the SAPO). |
| (5) | M1 plus other short-term and medium-term deposits held by the domestic private sector. |
| (6) | Long-term deposits of the domestic private sector with monetary institutions, including national saving certificates issued by the Postbank. |
| (7) | M2 plus long-term deposits held by the domestic private sector. |
Source: SARB.
Since the introduction of an inflation-targeting monetary framework, growth in the most broadly defined money supply (M3) has not been used as an intermediate target for monetary policy purposes. Nevertheless, money supply and credit may provide useful information about prospective spending plans and inflationary pressures.
The Basel III capital-adequacy framework and the accompanying regulatory reforms were implemented in January 2013. In line with the requirements of Basel III, the South African banking sector remains well capitalized. South African banks meet the minimum capital adequacy requirements. At the end of October 2017, total capital adequacy stood at 16.8%, common equity tier 1 (CET 1) at 13.3% and at the tier 1 level was 13.8%. The implementation of the Basel III framework in South Africa is based on a phased-in approach which commenced on January 1, 2013 and will continue up to 2018, in line with the timelines determined by the Basel Committee. The Basel III Liquidity Coverage Ratio has been implemented from January 1, 2015, while the Net Stable Funding Ratio will be effective from January 1, 2018.
From late 2010 the M3 growth rate fluctuated around an average of 7.0%, displaying a sideways trend in the subsequent years before increasing from 5.9% in February 2014 to a recent high of 10.5% in December 2015. During the four years to June 2014, year-on-year growth in M3 generally fell below that of nominal GDP, but this trend started to reverse towards the end of 2014 and into 2015 as sluggish activity and lower commodity prices weighed on the level of nominal value added in the economy. The firmer growth in M3 deposits was underpinned by growth in deposits of both the household and corporate sectors and can partly be ascribed to rising interest rates, accelerating inflation and moderately rising real final demand, combined with a build-up in precautionary balances by asset managers in the wake of renewed financial market volatility. The depreciation of the Rand from 2013 also resulted in an upward revaluation of foreign-currency deposits included in M3. On a quarterly seasonally adjusted and annualized basis, growth in M3 reached a recent high of 13.1% in the second quarter of 2015, before slowing in the subsequent period to as low as zero % in the second quarter of 2017. Growth in M3 slowed significantly in 2016 following a gradual year-on-year increase over the preceding two years.
This reflected, among other things, a methodological change to the monetary statistics which partly affected the value of deposits reported by banks from January 2016. In their survey reporting, banks were requested to move certain short-term debt instruments, such as structured and credit-linked notes, from deposits to debt securities as they fall outside the definition of money. Growth in M3 then trended higher as from mid-2016 and occasionally exceeded the weak expansion in nominal GDP. Quarter-to-quarter seasonally adjusted and annualized growth in M3 rebounded from zero % in the second quarter of 2017 to 8.3% in the third quarter. The upward momentum in money supply growth reflected a notable recovery in the growth of deposit holdings of financial companies, supported by a sustained growth in household deposits and a marginal improvement in the deposits of non-financial companies. Factors that contributed to the higher growth in M3 during 2017 included institutional investor receipts of proceeds from the redemption of the R203 government bond in September, which shifted deposits from government to deposit holders, being included in the calculation of money supply; and banks’ drive, in the context of Basel III liquidity requirements, to attract and maintain stable longer-term deposits, especially of the household sector.
The most liquid deposit category – cash, check and other demand deposits – continued to dominate private sector deposits, both in terms of absolute size and growth. This category expanded at an average year-on-year rate of 10.6% in the first ten months of 2017. Despite private sector banks’ efforts to attract stable funding, growth in long-term deposits only averaged 6.7% over this period, down from 8.0% in 2016. By contrast, growth in short- and medium-term deposits fluctuated below zero % during most of 2016 and 2017, although the contraction moderated in recent months. The contribution of long-term deposits to total deposit balances remained at around 19.0% for most of 2017, with cash, check and other demand deposits accounting for 50.0%.
Financial System Stability
The SARB regards the achievement and maintenance of price stability as its primary goal. A necessary parallel objective to this is financial system stability, without which monetary policy cannot be effectively implemented. To pursue the maintenance of financially stable conditions and contain systemic risk, the SARB, with the help of the Financial Stability Committee and the Financial Stability Department continuously assesses the stability and efficiency of the key components of the financial system formulate and reviews policies for intervention and crisis resolution. In 1999, the SARB established a Financial Stability Committee with the specific mandate to strive to enhance financial stability by continuously assessing the stability and efficiency of the financial system, formulating and reviewing appropriate policies for intervention and crisis resolution, and strengthening the key components of the financial system. A Financial Stability Department was established within the SARB with effect from August 1, 2001 to help monitor the stability of the financial system as a whole by identifying inherent weaknesses and the build-up of risks that may result in financial system disturbances. Central to the SARB’s increased focus on, and contribution to, the financial stability discourse, a semi-annual Financial Stability Review is published that covers both a quantitative and qualitative assessment of the strength and weakness of the South African financial system.
A cross-sectoral body was created in 2002 to facilitate cooperation in identifying threats to the stability of the South African financial sector and in proposing and obtaining approval for appropriate plans, mechanisms and structures to mitigate such threats. This body creates a coordinated network of contingency planning contacts throughout the financial services industry, and has the capacity to act as a crisis management team to deal with tactical situations affecting one or more firms. It also facilitates cooperation between key financial sector institutions and regulators in times of catastrophic events or disasters through business continuity planning, which serves to better protect staff, facilitate recovery and sustain both a stable financial market and consumer confidence.
In August 2017, the Financial Sector Regulation Bill was signed into law. The Financial Sector Regulation Act (FSR Act) provides an explicit financial stability mandate to the SARB and also creates statutory structures for the coordination and cooperation on financial stability issues among financial sector regulators. The Financial Stability Oversight Committee (FSOC), as set out in the FSR Act is composed of representatives from the Financial Sector Conduct Authority, Prudential Authority, Financial Intelligence Centre, National Credit Regulator as well as the SARB and its primary objective is to support the SARB in promoting financial stability as well as facilitating co-operation and collaboration, and co-ordination of action, among the financial sector regulators and the SARB. The Act also establishes the Financial Sector Contingency Forum, which also includes representatives from the industry, and whose main objective is to assist the FSOC with the identification of potential risks and to coordinate appropriate plans and actions to mitigate such risks.
Regulation of the Financial Sector
Since 1994, South Africa has made a dedicated effort to deregulate the financial sector. The new market-based approach to regulation relies heavily on the use of strengthened corporate governance and accountability principles, enhanced disclosure systems, and market discipline as an incentive to compliance. Although increased deregulation has encouraged both competition and innovation, it has simultaneously demanded heightened supervision, more explicit market integrity and strengthened consumer protection mechanisms.
The two main regulatory authorities, the Financial Services Board (FSB), which regulates the financial markets for equity, debt and derivative securities, as well as non-bank financial institutions registered under specific legislation and the SARB which supervises the banks, apply measures to secure the financial soundness of the financial system of South Africa as a whole. Under the FSR Act, the FSB shall be transformed into a Financial Sector Conduct Authority while prudential supervision will be performed by the Prudential Authority to be established under the administration of the SARB. The regulatory instruments that they use include entry and other standard requirements, ownership constraints, fit and proper persons tests, limitations on certain activities, jurisdictional constraints, pricing constraints and operational constraints (such as capital and liquidity requirements and trading capacity requirements). Domestic regulation and supervision requirements also incorporate international standards. South African financial institutions must comply with all relevant Basel capital adequacy and liquidity principles and standards. The phase-in period for the Basel III requirements began on January 1, 2013 and is anticipated to last through 2019. South Africa is already in compliance with the capital requirements of Basel III and will continue to comply with all the other related requirements within the stipulated timeline. South African financial institutions must also comply with the financial reporting and disclosure standards incorporated in the international accounting standards, adopted by the International Organization of Securities Commissions. The various financial markets, financial institutions and financial instruments are regulated by a series of general, specific and enabling legislation.
South Africa is also committed to implementing a program of financial services reform in line with other G-20 jurisdictions. The two main regulatory authorities, the Financial Services Board (FSB) and the SARB, apply measures to secure the financial soundness of the financial system of South Africa as a whole. The regulatory instruments that they use include entry and other standard requirements, ownership constraints, fit and proper persons tests, limitations on certain activities, jurisdictional constraints, pricing constraints and operational constraints (such as capital and liquidity requirements and trading capacity requirements). Domestic supervision also incorporates international standards. South African financial institutions must comply fully with the majority of the Basel capital adequacy principles and standards.
Legislation enacted in 1998 provides for an independent competition authority, comprising an investigative division and an adjudicative division with broad powers to, among other things, issue compliance orders and interdicts, levy fines, impose structural remedies such as divestitures and prohibit mergers. The legislation also provides for a right of appeal to a specially-constituted judicial authority. In the majority of cases, the adjudicative divisions have sole jurisdiction over competition matters. Amendments to the legislation enacted in 1999 require pre-merger notification in particular cases.
Recent legislative and regulatory initiatives coming into force since 2015 include the following:
| · | On August 21, 2017, the Financial Sector Regulation Bill, which is now the Financial Sector Regulation (FSR) Act, 9 of 2017, was signed into law. The FSR Act aims to promote, among other things, financial stability, the fair treatment and protection of financial customers, the efficiency and integrity of the financial system, the prevention of financial crime and the transformation in the financial sector. |
| · | The Portfolio Committee on Trade and Industry was granted permission by the National Assembly to introduce the National Credit Amendment Bill of 2018 (Committee Bill) addressing debt relief. The draft Committee Bill, which was published for public comment on November 24, 2017, and primarily aims to amend the NCA, 2005, providing for a debt intervention and matters connected therewith. |
| · | In December 2016, Parliament’s Standing Committee on Finance (SCOF) invited the public to make written submissions on the Insurance Bill, 2016, which was tabled by National Treasury in Parliament on January 28, 2016. The Bill provides a consolidated legal framework for the prudential supervision of the insurance sector in line with the international standards for insurance regulation and supervision. |
| · | The National Treasury published a third draft of the Ministerial Regulations with respect to the Financial Markets Act. The Regulations are necessary to advance South Africa’s commitment to the G20 obligation to implement regulatory and legislative reforms to make financial markets safer and to regulate the OTC derivatives markets. |
| · | As of 2016, the FSB has granted two new exchange licenses in terms of the Financial Markets Act, for ZARX (Pty) Ltd (ZAR X) and 4 Africa Exchange (Pty) Ltd (4AX). |
| · | The National Treasury is exploring options to promote entry into the banking sector as South Africa’s highly concentrated banking sector may compromise the level of competition needed to bring about efficiency improvements and greater access to financial services. South Africa is proposing a deposit insurance scheme, which can contribute to the development of a less concentrated banking sector and support financial inclusion and transformation of the sector. |
| · | In June 2015, the Banks Amendment Act 2015 was enacted to amend the Banks Act 1990. The Act aims to enhance the curatorship of banks in order to make the financial sector safer and protect depositors. The Act enhances the powers of the curator of a bank while under curatorship by expanding the basis on which a curator of a bank may dispose of all or part of the bank providing for: |
| · | allowing for the creation of a good bank outside the existing corporate entity; |
| · | facilitation of the transfer of all or part of a bank’s business to a successor entity; |
| · | a disposal pursuant to a transfer under section 54 of the Banks Act; and |
| · | facilitation of the implementation of the above steps by the curator. |
| · | In May 2017, the SARB published for public comment, a discussion paper entitled “designing a deposit insurance scheme for South Africa”. The deposit insurance scheme aims to protect less financially sophisticated depositors in the event of a bank failure, thereby contributing to customer protection enhancing the stability of the South African financial system. The scheme is also intended to increase competition in the banking sector by promoting entry into the banking sector as well as introduce efficiency improvements. |
| · | In April 2017, the Financial Intelligence Amendment Bill was signed into law. The Financial Intelligence Amendment Act seeks to strengthen the commitment to combatting financial crimes and address the gaps identified in the Financial Action Task Force and the IMF’s Financial Assessment Programme Technical Note on AML/CFT for South Africa in December 2014. |
| · | On November 6, 2015, the Department of Trade and Industry released a review of final limitations on fees and interest rates regulations, which was effected from May 2016. The review introduced new caps on fees and interest rates applicable to credit agreements falling under the National Credit Act 34 of 2005. The biggest change relates to unsecured credit agreements, where the proposed cap was reduced to 28.0% from 35.4% based on the repurchase rate of 7.0% then. The caps aim to protect consumers from unscrupulous lending practices and over-indebtedness. However, the credit providers have warned against the unintended consequences of these proposals, which include credit rationing and an increase in the number of banks introducing credit life insurance policies to circumvent lower interest rate caps. |
The foundation of the exchange control system in South Africa is the Currency and Exchanges Act of 1933, which entitles the President to enact regulations in relation to any matter relating to currency, banking or exchanges. Reforms implemented since 1994 have adapted the framework of exchange control to remove most of the major barriers to cross-border transactions. However, the Act of 1933 and the Regulations of 1961 (as amended) (Regulations) continue to form the basis of the exchange control system to this day. The Regulations set out prohibitions on the holding or dealing in foreign currency and gold and the exporting of capital or rights to capital except under the permissions and conditions set by the Treasury. The Minister of Finance has delegated responsibility for the administration of exchange control to the SARB, with certain exceptions. The Minister of Finance appoints banks as Authorized Dealers in foreign exchange to support the administration of controls, guided by the Exchange Control Rulings (issued by the Reserve Bank), which set out the authorities granted to Authorized Dealers and the detailed rules and procedures to be followed.
Structure of the Banking Industry
At the end of October 2017, 19 banks, three mutual banks and 15 local branches of foreign banks were registered with the Office of the Registrar of Banks. In addition, 30 foreign banks had authorized representative offices in South Africa.
The four largest banking groups dominating the South African banking sector are ABSA Bank Limited, the Standard Bank of South Africa Limited, FirstRand Bank Limited and Nedbank Limited, and constituted 82.0% of total banking-sector assets at the end of October 2017. The four largest banks offer a wide range of services to both individual and corporate customers at branches across all nine provinces.
The South African banking system remained profitable and adequately capitalized throughout 2016 and into 2017. The total stock of outstanding loans and advances in the banking sector increased by 4.0% to R3,856 billion as at the end of October 2017 (October 2016: R3,706 billion). The capital adequacy ratio for the banking sector was 16.8% in October 2017, exceeding the 9.5% minimum capital adequacy requirement and therefore reflecting adequate systemic capitalization. The banking sector’s capital consists mainly of share capital and reserves (the highest loss-absorbing capital types).
Total banking-sector assets increased from R4,881 billion at the end of October 2016 to R5,124 billion at the end of October 2017, representing a 5.0% increase. The increase in total banking-sector assets is largely attributable to an increase in term loans, treasury bills and other dated investment and trading securities. Impaired advances to gross loans and advances, a key indicator of credit risk, has declined marginally to 2.8% in October 2017 compared to 2.9% in October 2016.
Financial Sector Charter
In August 2002, the financial sector voluntarily committed itself to developing a charter to address historical sector imbalances, particularly with reference to human resource development, broadening economic participation and access to financial services. Thereafter, key industry stakeholders came together to develop the Financial Sector Charter, which was launched by the industry and the Minister of Finance in October 2003. The Financial Sector Charter was built around a central vision of promoting a transformed, vibrant and globally-competitive financial sector that reflects the socioeconomic demographics of South Africa and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and directing investment into targeted areas in the economy.
The Financial Sector Charter established sector transformation goals, emphasizing targets for human resource development, procurement and enterprise development, access to financial services and ownership transfer. In order to provide access to financial services, the country’s four major retail banks – ABSA, FirstRand, Nedbank and Standard Bank – as well as the Postbank, launched the Mzansi account in October 2004. Mzansi is a low‑cost national bank account aimed at ensuring that those falling within the lower socio-economic groups have access to first-order retail banking products that would provide them with entry-level banking services. There have been approximately six million Mzansi accounts opened, 4.5 million of which were opened by South Africa’s four major commercial banks. It is estimated that 72.0% of these were first-time accounts. Major banks have since de-emphasized Mzansi and are promoting their own branded low-income accounts. The percentage of adult South Africans who use banking services has improved from 51.0% as at June 30, 2006 to 75.0% as at June 30, 2013.
In addition, the financial sector committed to ensuring that 80.0% of the population in lower income groups has access to full-service banking points of presence within at least 15 kilometers of every poor South African and cash-withdrawal points of presence such as automatic teller machines within at least ten kilometers. By December 2010, 91.6% of poor households had access to points of presence of banks and Postbank within ten kilometers of their home. This percentage was 84.7% if only the big four banks are considered.
Credit Allocation
Growth in bank credit extended to the domestic private sector declined steadily to an annual average of 6.8% in 2016, following four consecutive years of average growth of approximately 8.0%. The decline in credit growth reflected the depressed state of domestic economic activity. Year-on-year growth in total loans and advances reached a post-recession low of 4.5% in November 2016 – its lowest rate since December 2010. Subsequently, growth increased marginally in 2017. In the first ten months of 2017, a moderate increase in loans and advances to the household sector narrowly offset a decrease in loans and advances to the corporate sector. Growth in credit extension to companies was likely suppressed by reduced corporate investment amid protracted weak domestic demand and low business confidence in an environment of heightened political uncertainty. Domestic demand for goods and services was affected by reduced household spending as a result of uncertain employment prospects, which together with low consumer confidence contributed to weak household demand for bank credit. Year-on-year growth in total loans and advances initially rebounded from November 2016 to 6.3% in May 2017, but decreased to 5.3% in October 2017. The quarter-to-quarter seasonally adjusted and annualized growth in total loans and advances to the private sector decreased from a high of 10.9% in the fourth quarter of 2015, to 6.4% at the end of 2016 and decreased further to 3.0% in the third quarter of 2017, suggesting a renewed loss of momentum. The slower growth in credit extension relative to nominal GDP resulted in a further decrease in the ratio of credit to GDP, from 73.7% in the fourth quarter of 2015 to 72.3% in the third quarter of 2017.
Growth in mortgage advances on commercial property slowed significantly from the end of 2015 to the beginning of 2017, but increased moderately from a low of 6.9% in April 2017 to 7.4% in October 2017. Growth in mortgage advances on residential property was relatively static, remaining at approximately 3.3% in the first ten months of 2017, moderately down from a recent peak of 4.2% in February 2016. Instalment sale credit and leasing finance, mostly used for the financing of new and second-hand vehicles, increased moderately from 2.4% in May 2016 to 4.8% in October 2017, in line with stronger new vehicle sales.
The following table sets out the distribution of gross credit exposure at the end of September 2017.
Percentage distribution of total credit extended (as of September 30, 2017)
| | Percentage distribution of total gross credit exposure of banks % |
| Corporate exposure | 36.8 |
| Public sector entities | 2.4 |
| Local government and municipalities | 0.4 |
Sovereign (including central government and
central bank) | 9.2 |
| Banks | 12.8 |
| Securities firms | 3.6 |
| Retail exposure | 34.1 |
| Securitization exposure | 0.7 |
Source: SARB
The following table sets out the distribution of gross credit exposure by economic sector at the end of September 2017.
Credit extension by economic sector as of September 30, 2017
| Sectorial distribution of credit | | Rand (billion) | | | As a percentage of total credit | |
| Agriculture, hunting, forestry and fishing | | | 116.5 | | | | 1.9 | |
| Mining and quarrying | | | 183.2 | | | | 3.1 | |
| Manufacturing | | | 307.6 | | | | 5.1 | |
| Electricity | | | 140.3 | | | | 2.3 | |
| Construction | | | 65.8 | | | | 1.1 | |
| Wholesale, retail trade and accommodation | | | 303.4 | | | | 5.1 | |
| Transport and communication | | | 204.3 | | | | 3.4 | |
| Financial intermediation and insurance | | | 1,525.2 | | | | 25.5 | |
| Real estate | | | 489.5 | | | | 8.2 | |
| Business services | | | 229.0 | | | | 3.8 | |
| Community, social and personal services | | | 437.1 | | | | 7.3 | |
| Private households | | | 1,791.4 | | | | 30.0 | |
| Other | | | 187.5 | | | | 3.1 | |
| Total | | | 5,980.8 | | | | 100.00 | |
Source: SARB
The following table sets out the geographical distribution of gross credit exposure as of September 30, 2017.
| Geographical distribution of credit | | Rand (billion) | | | As a percentage of total credit | |
| South Africa | | | 5,283.7 | | | | 88.3 | |
| Other African countries | | | 149.2 | | | | 2.5 | |
| Europe | | | 396.3 | | | | 6.6 | |
| Asia | | | 61.1 | | | | 1.0 | |
| North America | | | 64.3 | | | | 1.1 | |
| South America | | | 9.1 | | | | 0.2 | |
| Other | | | 17.0 | | | | 0.3 | |
| Total | | | 5,980.8 | | | | 100.00 | |
Source: SARB
Capital Markets
The JSE was established in 1887 and is a licensed exchange for all securities. The JSE is governed externally by South African legislation and internally by its own rules and regulations. The JSE listed itself on June 5, 2006. The listing included a proposal regarding the implementation of a B-BBEE initiative. In February 2011, the JSE launched the Black Economic Empowerment (BEE) Segment, offering a facility for BEE-compliant parties to list and trade BEE scheme shares. Subsequent to the Financial Services Board’s (FSB) change in policy in relation to the regulation of all providers of over-the-counter (OTC) share trading platforms, the JSE made amendments to the JSE Listings Requirements in July 2015 to allow trading in BEE securities on the BEE Segment via the use of a verification agent, in addition to the current BEE contract route. Consequently, some companies moved from OTC trading to a listing on the JSE’s BEE Segment. At the end of September 2017, a total of three companies were listed on the JSE’s BEE Segment.
In addition to the JSE, the Financial Services Board (FSB) granted four new stock exchange licenses. ZAR X started trading in February 2017, followed by 4 Africa Exchange (4AX) in September 2017 and A2X Markets (A2X) in October 2017. The fourth new exchange, Equity Express Securities Exchange (EESE), has not started trading.
The introduction of the Johannesburg Equities Trading system (JET), an electronic, automated and central order-driven system, culminated in the closure of the trading floor in 1996. Subsequently, the trading system and real-time information dissemination system (InfoWiz) of the London Stock Exchange (LSE), replaced JET in May 2002. In 2007, the JSE and the LSE both moved onto the LSE’s new trading platform, TradElectTM. JSE members connected to JSE TradElectTM and InfoWiz through a hub at the JSE in South Africa. In July 2012, the JSE moved its equity market trading activity onto Millennium ExchangeTM after concluding a license agreement with technology solutions provider MillenniumIT. Consequently, the JSE’s trading system relocated from London to Johannesburg.
In June 2003, the JSE announced the first alternative “exchange” in Africa that would list small- and medium-sized companies, specifically targeting B-BBEE and junior mining companies. The Alternative Exchange (AltX) opened in October 2003 and runs parallel to the main board, with separate listings requirements and reduced fees. As of September 29, 2017, 52 companies were listed on AltX with a market capitalization of R21.0 billion.
The South African Futures Exchange (SAFEX) is the forum for trading futures and options contracts. The JSE acquired SAFEX in August 2001 and merged it into the JSE as the Equity Derivatives Market and the Commodity Derivatives Market. Colloquially, the term “SAFEX” is still used to refer to the JSE’s derivatives market. In February 2005, the JSE launched Yield-X, which is the platform for trading of all interest rate-related and currency derivative products. Subsequent to the BESA merger, Yield-X has been collapsed into the JSE’s Interest Rate and Currency Derivatives Markets.
Derivative instruments are traded either on an OTC basis or on an exchange. The Equity and Commodity Derivatives Markets of the JSE, together with the Interest Rate and Currency Derivatives Markets are responsible for trade in all futures contracts and options on futures. SAFEX Clearing Company (Pty) Limited (Safcom) is the clearing house for SAFEX and also provides compliance, surveillance and other exchange services. SAFEX introduced commodity futures in South Africa in July 1995, Rand-Dollar futures in May 1997, and individual equity futures in February 1999. On June 18, 2007, the JSE began trading in various foreign currency derivatives. The financial market infrastructure was modernized in 2008 through the replacement by the JSE of its 15-year-old derivatives system with a multiple instrument online trading system, Nutron.
Regulation of insider trading is vested in the FSB, which has extensive surveillance and detection capability and was established in partnership with the JSE. The JSE published a revised booklet on Insider trading and other market abuses in August 2013. The purpose of this booklet is to bring together the various acts, requirements and relevant corporate governance guidelines that have a bearing on preventing market abuse.
Pursuant to the amalgamation of the BESA and the JSE in June 2009, the trading platforms of the two interest rate markets operated by the JSE, namely the Yield-X market and the BESA market, were integrated in 2011. As a result, the old BESA BTB system was decommissioned and the reporting of bond transactions migrated onto the JSE Nutron platform on May 9, 2011. The rules and directives covering the integrated markets (Yield-X and BESA) known as the ‘JSE Interest Rate and Currency (IRC) rules and directives’ also came into effect on May 9, 2011, thus repealing the old rules and directives previously applicable to the BESA market.
While Share Transactions Totally Electronic (Strate) has been the only central securities depository since its inception in 1999, the FSB granted Granite Central Securities Depository a financial market infrastructure license to operate as such a depository in August 2015. The license mandate is for bonds and money-market instruments. Strate is in the process of modernizing the market infrastructure for its money-market, bond and equity depository operations with a software suite streamlining its service across all asset classes as the three systems are consolidated into one. To date, Strate implemented the new system for money-market instruments and bonds.
The main index charting the performance of the JSE is the FTSE/JSE All-Share Price Index. At September 29, 2017, the FTSE/JSE All-Share Price Index included 163 companies and accounted for approximately 78.0% of the market capitalization of the JSE. As at September 29, 2017, the ten largest companies by market capitalization represented approximately 61.0% of total market capitalization.
Exchange Controls
South African law provides for exchange controls, which, among other things, restrict the outward flow of capital from South Africa, the Kingdoms of Lesotho and Swaziland and the Republic of Namibia, known as the common monetary area (CMA). The Exchange Control Regulations are applied throughout the CMA and regulate transactions involving South African residents, including companies and institutional investors. The basic purpose of the Exchange Control Regulations is to mitigate the negative effects caused by a decline of foreign capital reserves in South Africa, which could result in the devaluation of the Rand. The National Government has, however, committed itself to gradually relaxing exchange controls. On October 1, 2016, a joint tax and exchange control Special Voluntary Disclosure Programme (SVDP) commenced which ended on August 31, 2017. The SVDP was a joint initiative between the South African Revenue Service (SARS) and the SARB, in conjunction with the National Treasury, for individuals and companies to regularize both their unauthorized tax and exchange control affairs, for a limited period.
The SARB, on behalf of the Minister of Finance, administers South Africa’s exchange control regulations. The appointment of Authorized Dealers in foreign exchange (Authorized Dealers), previously considered and approved by the Minister of Finance, has been delegated to the Financial Surveillance Department. A number of banking institutions and entities have been appointed as Authorized Dealers and/or Authorized Dealers in foreign exchange with limited authority (ADLAs). In addition, in 2017, the first Restricted Authorized Dealer was appointed. Such banking institutions and entities undertake foreign exchange transactions for their own account on behalf of their clients, subject to conditions established by the SARB. Until 1995, control over non-residents’ capital transactions was based mainly on the Financial Rand System, which was reintroduced in 1985 at the time of the proclamation of the debt standstill. In March 1995, the National Government abolished the Financial Rand System and the resulting dual exchange rate. No capital controls are, therefore, applied to non-residents, who may freely invest in and disinvest from South Africa. This applies to portfolio investment as well as foreign direct investment into South Africa.
Since the abolition of the Financial Rand System in 1995, South Africa has had a unitary exchange rate that applies to both current and capital transactions between residents and non-residents. As discussed below, South African residents still face certain restrictions. However, these restrictions have gradually been eased to foster macroeconomic stability, a stronger balance of payments and financial sector development. The proposed strategy going forward is characterized by a fundamental shift from a system where a substantial fraction of cross-border transactions are subject to restrictions, approvals and administrative requirements to a more open regime where transactions are generally permitted with a narrow set of regulations targeted at specific national interests, macroeconomic and financial risks. In 2014, the Minister of Finance announced that the National Treasury, in conjunction with the SARB and other stakeholders would streamline the Exchange Control Rulings and associated Exchange Control Manual in order to, among others, improve administration. With a view to transparency regarding remaining exchange controls in place, two Currency and Exchanges Manuals for Authorized Dealers and ADLAs, respectively, as well as two guideline documents for individuals and business entities were published on the website of the SARB on July 29, 2016, for implementation from August 1, 2016. This was the first time that the technical document, normally only issued to Authorized Dealers, was made available to the public.
The broad principles for exchange control reforms are as follows:
| · | supporting macroeconomic and financial stability through the macro-prudential regulation of cross‑border capital flows; |
| · | encouraging the growth of South African companies in domestic, regional and international markets; |
| · | supporting cross-border trade and higher levels of foreign direct investment in South Africa; |
| · | support the overarching strategy for increasing investment and growth; |
| · | reflect a fundamental shift in the approach to regulation; |
| · | recognize the different objectives that are supported by exchange controls (e.g., contributing to systemic stability; supporting prudential regulation of financial institutions; protecting the tax base; and supporting the prevention of financial crime (including money laundering)); |
| · | address the distortions created by exchange controls; |
| · | holistic approach and taking into account interactions between institutions and individuals, residents and non-residents; and |
| · | proportionate reporting requirements. |
The present exchange control system in South Africa is used primarily to control movements of capital by South African residents. In order to ensure that capital transfers are not disguised as current payments, controls and limits are placed on transfers of a current nature. South African residents may avail of a single discretionary allowance of up to R1 million per calendar year, without the requirement to obtain a Tax Clearance Certificate, that may be used for any legal purpose (including for investment purposes abroad as well as the sending of gift parcels in lieu of cash, excluding gold and jewellery) without any documentary evidence having to be produced, except for travel purposes outside the CMA, where certain prescribed documentation is required. In addition, private individuals may invest up to R10 million per calendar year for any purpose outside the CMA, provided that the individual is over the age of 18 years and subject to obtaining a Tax Clearance Certificate, which is issued by SARS.
Furthermore, in order to eliminate the bias against residents, the SARB’s Financial Surveillance Department will consider investments by residents in excess of the R10 million foreign capital allowance, subject to certain conditions, such as tax compliance. South African residents who are temporarily abroad may also avail of the R1 million single discretionary allowance and the R10 million foreign capital allowance per calendar year without returning to South Africa. Residents temporarily abroad may also receive pension and retirement annuities as well as monetary gifts and loans.
The Minister of Finance also announced the removal of controls on emigrants’ remaining assets. Emigrants can now transfer up to R10 million per single person or R20 million per family unit per calendar year and emigrants can also apply to the SARB’s Financial Surveillance Department for the transfer of all their assets without the application of any exit levy to free those assets, provided their tax obligations were met.
With effect from October 2004, limits on foreign direct investments by South African corporates were abolished. Dividends declared by offshore subsidiaries of South African companies may be retained offshore. Foreign dividends repatriated to South Africa may be retransferred offshore again at any time for any purpose. Corporates are allowed, on application, to transfer funds from South Africa for each new and approved foreign investment outside the CMA. Authorized Dealers administer the directives and guidelines on foreign direct investments under R1 billion, per company, per calendar year. Application to the SARB’s Financial Surveillance Department for prior approval of a foreign investment is still required for foreign direct investments over R1 billion, per company, per calendar year. These applications, which allow the SARB to monitor the level of foreign investment, are considered on merit and are granted if South African exchange control authorities believe the investments would be of long-term economic benefit to South Africa and at least 10.0% of the foreign target entity’s equity and/or voting rights will be obtained. The SARB reserves the right to stagger capital outflows relating to very large foreign investments to manage any potential impact on the foreign exchange market. In order to reduce the administrative costs and procedures of doing business for corporates, the Minister of Finance, in the 2011 MTBPS, allowed corporates to be able to top up capital in their off-shore business from South Africa, provided they remain within an annual limit, which is currently R1 billion. The transfer of the unutilized amounts and/or additional working capital to foreign target entities and/or to increase an applicant’s approved equity interest and/or voting rights in an off-shore target entity, as and when required, is permitted without recourse to South Africa. South African corporates are also allowed to make bona fide new outward foreign direct investments outside their current line of business.
South African companies are generally permitted to undertake international expansion and the policy stance is to encourage growth into the rest of Africa. There are no limits on the use of domestic capital for funding investment, although administrative and reporting conditions remain in place and investments above R1 billion per year require approval. The HoldCo regime introduced in 2013 provides local companies with a structure for managing their multinational operations without restrictions. Listed companies may transfer up to R2 billion per calendar year into approved HoldCos; unlisted companies may transfer up to R1 billion per calendar year, subject to transparency requirements. Listed companies can further apply to the SARB to transfer additional amounts of up to 25.0% of the company’s market capitalization, subject to demonstrated benefits for South Africa. Unlisted companies may also apply for additional funding.
In the 2009 MTBPS, reforms to reduce red tape on business transactions were announced. The prohibition on SADC loop structures was abolished and in the 2011 MTBPS, the Minister of Finance announced that transactions which result in ‘loop’ structures not exceeding a threshold of 10.0% - 20.0% equity, and/or voting rights, whichever is higher, in the foreign target entity, will be processed by Authorized Dealers without the need for prior approvals.
From March 1, 2017, South African residents, excluding mandated state-owned companies, have been granted certain exemptions relating to the sale, transfer, assignment and licensing of intellectual property to unrelated non-resident parties in an arm’s length transaction and at a fair market price.
In the 2010 MTBPS, the Minister of Finance announced measures to encourage global diversification from a domestic base by using South Africa as a gateway to Africa. In this regard, from January 1, 2010, qualifying internationally headquartered companies are allowed to raise and deploy capital offshore without the need to obtain exchange control approval, subject to reporting requirements. With effect from November 2012, the shares and/or debt of a headquarter company may be listed on the JSE Limited or be held directly or indirectly by a shareholder with shares or debt listed on the JSE Limited.
The 3:1 ratio applicable to local financial assistance in respect of affected persons was withdrawn. The 1:1 ratio remains applicable for the acquisition of residential properties and any other financial transactions (such as portfolio investments, securities lending, hedging and repurchase agreements, among others) by non‑residents and affected persons. Local financial assistance made available to emigrants also remains subject to the 1:1 ratio for financial transactions and/or the acquisition of residential or commercial property in South Africa. Emigrants that utilize their remaining Rand assets as collateral must comply with the 1:1 ratio irrespective of the nature of the transaction.
Authorized Dealers are allowed to approve the granting of credit terms in respect of exports only for periods not exceeding six months, with an extension of a further six months in certain circumstances without reference to the SARB. In an endeavor to reduce barriers to trade, the Minister allowed corporates to do advance payments for capital goods for up to 100.0% of ex-factory cost of goods to be imported not exceeding a total value of R10 million. Payments for importation of capital goods in excess of R10 million may only be provided up to 50.0% of the ex-factory cost of the goods to be imported. The requirement for Authorized Dealers to view a copy of the SARS Customs Declaration bearing the MRN in respect of advance payments for imports has been dispensed with for payments up to R50,000. Furthermore, corporates are allowed to cover forward (using forward exchange contracts) up to 75.0% of budgeted import commitments or export accruals in respect of the forthcoming financial year without an application to the SARB. The R250,000 limit on advance payments for permissible imports, other than capital goods, was removed and South African companies are allowed to open foreign bank accounts for permissible purposes without prior approval, subject to reporting obligations.
South African companies involved in international trade are permitted to operate a single customer foreign currency (CFC) account for both the trade and services and use it for a wider variety of permissible transactions. This reduced the transaction costs associated with multi CFC accounts and their restricted use.
South African importers and exporters of goods have been permitted to offset permissible costs over a CFC account. The requirement that companies must convert foreign exchange credited to a CFC account to Rand within 180 days was removed, however there is still a requirement to repatriate export proceeds to South Africa.
In addition, foreign currency purchased in the spot market for permissible transactions in respect of a firm and ascertainable underlying commitment, or the maturity proceeds of hedging contracts, may be credited to a CFC account, if the funds are transferred abroad within a period of 30 days.
Various measures aimed at easing certain of the country’s remaining exchange control regulations became effective in the late 1990s. The measures included: abolishing most of the remaining quantitative limits on current account transactions; permitting South African institutions to invest funds abroad; permitting trading of Rand‑dollar futures contracts on SAFEX, with participation initially restricted to individuals and institutional investors; and relaxing the application of local borrowings limits to foreign-controlled South African companies.
Retirement funds and underwritten policies of long-term insurers are permitted, without prior SARB approval, to invest up to 25.0% of their total retail assets under management in foreign assets and an additional 5.0% in Africa. Collective investment scheme management companies, investment managers registered as institutional investors for exchange control purposes and investment- linked businesses of long-term insurers are permitted to invest up to 35.0% of their total retail assets under management in foreign assets and an additional 5.0% in Africa.
The macro-prudential limit for Authorized Dealers was introduced in 2010 and enabled Authorized Dealers to acquire direct and indirect foreign exposure of up to a macro-prudential limit of 25.0% of their total liabilities excluding total shareholders’ equity.
In the 2013 Budget Speech, the Minister of Finance announced that Authorized Dealers may invest an additional 5.0% of their total liabilities, excluding total shareholders’ equity, for expansion into Africa, in addition to the current macro-prudential limit of 25.0%.
In the 2014 Budget Speech, the Minister of Finance announced that Authorized Dealers are allowed to participate in foreign syndicated loans, regardless of whether the borrower is resident or not, provided they are within their macro-prudential foreign exposure limit.
Foreign entities are permitted to list equity, debt and derivative instruments on the JSE Limited. Foreign entities, local Authorized Dealers and the JSE Limited are allowed to issue inward listed instruments referencing foreign assets on the JSE Limited, subject to prior approval. Furthermore, South African private individuals, corporates, trusts, partnerships and emigrants are permitted to invest without restrictions in approved inward-listed instruments on the JSE Limited. Foreign companies may be allowed to use their shares as acquisition currency, subject to prior approval from the SARB’s Financial Surveillance Department.
In the 2011 MTBPS, the Minister of Finance announced further significant reforms of inward listings in order to promote the development of the South African capital markets. The Minister announced that all listed shares on the JSE Limited, traded and settled in Rand, will be classified as domestic assets for the purpose of trading on the JSE Limited and inclusion in its indices. This new dispensation does not affect companies currently classified as domestic, which have a primary listing on a foreign exchange, which will continue to be included in the indices on the current basis. This initiative is meant to improve South Africa’s position as a financial gateway into Africa. However, in order to maintain a balance between capital market growth and development and the objective of managing exposure to foreign risk, prudential institutions would still be required to report their foreign exposure to regulatory authorities.
These changes also herald a shift in the regulatory regime from control measures to prudential regulation.
The restrictions on South African companies and other entities to participate in foreign inward-listed securities on the JSE Limited, including participation in the Rand futures, were removed. These changes enable South African companies, trusts, partnerships and banks to manage their foreign exposure. These changes also allow companies to diversify and hedge their currency exposure, which support macroeconomic stability, reduce exchange-rate volatility and deepen domestic financial markets. This dispensation was also extended to investment in inward-listed (foreign) instruments on the JSE Limited.
Furthermore, the Minister of Finance allowed the JSE Limited to offer to non-resident and qualifying South African and other CMA corporate entities directly and actively involved in the agricultural grain industry, Zambian referenced grain derivative contracts for trading and settlement in USD.
To assist South Africa’s technology, media and telecommunications companies to access capital for growth into Africa, the Minister of Finance announced in the 2014 Budget Speech that unlisted technology, media, telecommunications, exploration and other research and development companies, may apply to the SARB’s Financial Surveillance Department to primary list offshore or raise foreign loans and capital for their operations. In addition, such companies may now establish offshore companies without the requirement to primary list offshore.
Furthermore, companies listed on the JSE Limited may secondary list and/or list depository receipt programs on foreign exchanges to facilitate both local and offshore foreign direct investment expansions.
In the 2014 Budget Speech, the Minister of Finance announced that, in order to promote foreign diversification through domestic channels, foreign member funds have been introduced, which are collective investment schemes and alternative investment funds such as private equity funds, venture capital funds and hedge funds, who will be allowed to offer foreign exposure to their underlying investors.
From February 24, 2017, local collective investment scheme management companies registered with the Financial Services Board and regulated under the Collective Investment Scheme Control Act (2002) will be allowed to inward list exchange-traded funds referencing foreign assets on the JSE Limited. These funds will not be subject to macroprudential limits on amounts that may be invested offshore. South African institutional investors and Authorized Dealers will be allowed to invest in such funds, subject to their respective macroprudential limits. These funds will be classified as foreign assets for prudential purposes. Qualifying collective investment management companies wishing to inward list exchange traded funds referencing foreign assets on the JSE Limited, require prior written approval from the Financial Surveillance Department.
In an effort to promote competition and reduce the cost of remittances to neighboring and other countries, ownership restrictions on international participation in ADLAs (i.e., foreign exchange bureaus) were removed. In addition to this, the requirement for money remittance agencies to partner with existing Authorized Dealers in order to do remittance work will no longer be obligatory.
In 2015, in an effort to reduce costs in respect of low value cross-border transfers and entice a large portion of the community into the formal banking arena, the Financial Intelligence Centre (FIC), the Minister of Finance and the SARB’s National Payment System Department and Financial Surveillance Department, in collaboration with the Reporting Entities, agreed to remove certain requirements relative to residents and non-residents.
The Minister of Finance announced in the 2017 Budget speech that the National Treasury will undertake a review of its capital flows management framework, which will be reviewed against best practice of other developing economies. In addition, the National Treasury will begin consulting with interested parties on new inward listings. Consultation between the SARB and the National Treasury on these and other matters continues to be a priority, with a focus on a modernized policy framework and improving South Africa’s investment climate.
Gold and Foreign Exchange Contingency Reserve Account (GFECRA)
GFECRA in the books of the SARB reflects the Rand valuation profits and losses on all the gold, STRs and foreign exchange that form part of the official gross foreign exchange reserves of the country. It also includes the Rand value of the foreign exchange forward transactions conducted by the SARB as well as liabilities of the SARB denominated in foreign currencies.
The GFECRA comprises credit and debit balances on three different sub-accounts: a gold price adjustment account (GPAA); a foreign exchange adjustment account (FEAA); and a forward exchange contracts adjustment account (FECAA).
The GPAA reflects any valuation profit or loss on the gold held by the SARB. The volume of the gold holdings has been fairly static over the past decade at around four million fine ounces. The FEAA account reflects any profit or loss on the Rand valuation of the foreign currencies held due to the depreciation or appreciation of the Rand against these currencies. In terms of the SARB Act, the SARB can calculate an exchange commission on all foreign exchange transactions conducted on behalf of the National Treasury. This commission or exchange margin is also reflected in the FEAA and settled annually by the National Treasury.
The FECAA reflects profits or losses on any forward exchange contract entered into by the SARB, valuation profits and losses on foreign exchange liabilities of the SARB, and any profit or loss due to changes in the value of the Rand against the currency of the United States on certain agreements for the reinsurance of export contracts. Since early 1997, the SARB has terminated the extension of forward cover with respect to future external commitments. The SARB, however, conduct sizeable amounts of foreign exchange swaps for liquidity management in the money market.
As at March 31, 2016, the GFECRA showed a positive balance of R304.7 billion, which represents net valuation gains of approximately the same amount and cash flow losses of R186 million. These cash flow losses were settled on May 6, 2016. As at March 31, 2017, the GFECRA balance had decreased to R236.8 billion, mainly due to the appreciation of the exchange rate of the Rand over the period. Cash flow losses to be settled by the NT amounted to R224.6 million for the year to March 31, 2017. This balance was settled on April 25, 2017.
The SARB does not intervene in the foreign exchange market with a view to influence the value of the Rand exchange rate. However, the SARB purchases foreign exchange from the Authorized Dealers to accumulate reserves when market conditions allow.
The gross gold and foreign exchange reserves increased to US$49.4 billion at the end of September 2017, up from US$47.2 billion in 2016. This increase reflects receipt of the proceeds from the foreign debt issuance by the National Treasury and the depreciation of the U.S. dollar against certain currencies, which was offset by foreign payments on behalf of Government, and an increase in foreign exchange swaps conducted for liquidity purposes.
The International Liquidity Position, reflected a positive balance of US$42.0 billion at the end of September 2016, increasing to US$42.7 billion on September 30, 2017.
THE EXTERNAL SECTOR OF THE ECONOMY
Foreign Trade
The following table sets forth South Africa’s balance of trade for the periods indicated.
Balance of Trade
| Year | | Balance of Trade
Rand (billion) |
| | | |
| | | |
| 2013 | | -72.7 |
| 2014 | | -64.2 |
| 2015 | | -38.0 |
| 2016 | | 14.5 |
| 2017 | | 28.9 |
_________________
Note:
(1) To June 30, 2017.
The following table presents a breakdown of South Africa’s balance of trade by sector for the periods indicated.
| | Year ended December 31, |
| | Rand (billion) |
| Sector | 2013 | 2014 | 2015 | 2016 | 2017(1) | |
Exports | | | | | | |
| Total merchandise exports | 900,4 | 969,9 | 1 004,5 | 1 080,8 | 546,3 | |
| Agriculture, forestry & fishing | 54,1 | 62,7 | 67,5 | 78,7 | 40,0 | |
| Total: Mining | 275,5 | 274,7 | 253,1 | 275,0 | 156,5 | |
| Coal mining | 56,4 | 55,2 | 51,7 | 61,3 | 35,3 | |
| Gold & uranium ore mining* | 65,8 | 64,2 | 69,4 | 69,8 | 34,3 | |
| Other mining* | 153,3 | 155,4 | 131,9 | 143,9 | 86,9 | |
| Total: Manufacturing* | 570,8 | 632,4 | 683,8 | 727,2 | 349,8 | |
| Food | 21,3 | 24,9 | 24,8 | 27,9 | 12,1 | |
| Beverages | 13,9 | 15,2 | 16,3 | 17,6 | 8,0 | |
| Tobacco | 2,7 | 2,7 | 3,1 | 3,0 | 1,4 | |
| Textiles | 8,0 | 8,6 | 9,3 | 10,5 | 5,4 | |
| Wearing apparel | 4,1 | 4,6 | 5,1 | 5,2 | 2,5 | |
| Leather & leather products | 4,6 | 4,7 | 4,9 | 4,9 | 2,2 | |
| Footwear | 2,3 | 2,6 | 2,7 | 2,7 | 1,2 | |
| Wood & wood products | 4,4 | 5,6 | 6,4 | 7,0 | 3,4 | |
| Paper & paper products | 13,8 | 16,5 | 18,6 | 21,1 | 10,3 | |
| Printing, publishing & recorded media | 1,1 | 1,2 | 1,3 | 1,3 | 0,5 | |
| Coke & refined petroleum products* | 34,2 | 38,0 | 37,5 | 34,5 | 21,4 | |
| Basic chemicals | 45,9 | 50,7 | 53,0 | 54,1 | 27,7 | |
| Other chemicals | 8,6 | 11,1 | 12,6 | 11,7 | 6,5 | |
| Rubber products | 5,6 | 5,8 | 5,8 | 5,8 | 2,7 | |
| Plastic products | 14,0 | 16,9 | 15,2 | 17,2 | 7,8 | |
| Glass & glass products | 4,5 | 5,1 | 5,7 | 6,0 | 2,5 | |
| Non-metallic minerals | 11,8 | 13,6 | 13,4 | 16,9 | 7,5 | |
| Basic iron & steel | 76,3 | 92,6 | 84,1 | 91,0 | 48,3 | |
| Basic non-ferrous metals | 31,8 | 32,7 | 35,0 | 36,4 | 18,2 | |
| Metal products excluding machinery | 3,3 | 3,6 | 3,4 | 3,3 | 1,8 | |
| Machinery & equipment | 59,7 | 64,6 | 65,9 | 67,5 | 30,2 | |
| Electrical machinery | 19,6 | 23,4 | 24,2 | 23,9 | 9,9 | |
| Television, radio & communication equipment* | 0,6 | 0,7 | 0,7 | 0,6 | 0,2 | |
| Professional & scientific equipment* | 5,1 | 6,7 | 7,0 | 7,3 | 3,2 | |
| Motor vehicles, parts & accessories | 78,3 | 93,9 | 115,7 | 133,1 | 59,0 | |
| Other transport equipment | 6,6 | 7,5 | 8,6 | 9,3 | 4,6 | |
| Furniture | 5,4 | 5,6 | 5,7 | 5,5 | 2,3 | |
| Other industries | 2,4 | 2,7 | 3,3 | 3,9 | 2,0 | |
| Electricity, gas & steam | | | | | | |
| Undefined | 1,2 | 2,2 | 3,6 | 4,5 | 1,3 | |
| | | | | | | |
Imports | | | | | | |
| Total merchandise imports | 997,6 | 1 083,0 | 1 088,0 | 1 099,3 | 536,6 | |
| Agriculture, forestry & fishing | 37,8 | 40,5 | 46,5 | 59,1 | 26,1 | |
| Total: Mining | 15,6 | 14,7 | 13,7 | 17,4 | 9,0 | |
| Coal mining | 2,8 | 2,9 | 2,6 | 3,0 | 3,2 | |
| Gold & uranium ore mining* | 0,0 | 0,0 | 0,0 | 0,0 | 0,0 | |
| Other mining* | 12,8 | 11,8 | 11,0 | 14,4 | 5,8 | |
| Total: Manufacturing | 944,2 | 1 027,8 | 1 027,8 | 1 022,9 | 501,4 | |
| Food | 21,5 | 21,4 | 23,3 | 25,4 | 13,1 | |
| Beverages | 6,3 | 5,9 | 6,2 | 6,5 | 2,6 | |
| Tobacco | 1,5 | 2,1 | 2,4 | 3,3 | 1,1 | |
| Textiles | 14,7 | 16,2 | 18,3 | 19,2 | 9,2 | |
| Wearing apparel | 17,0 | 18,7 | 22,0 | 23,7 | 10,7 | |
| Leather & leather products | 3,7 | 4,2 | 4,6 | 4,3 | 1,8 | |
| Footwear | 10,9 | 11,7 | 13,4 | 14,4 | 6,2 | |
| Wood & wood products | 4,0 | 4,5 | 5,0 | 5,3 | 2,6 | |
| Paper & paper products | 11,1 | 12,6 | 13,7 | 14,7 | 6,2 | |
| Printing, publishing & recorded media | 3,1 | 2,9 | 2,8 | 2,8 | 1,0 | |
| Coke & refined petroleum products | 210,3 | 246,9 | 165,0 | 142,0 | 79,4 | |
| Basic chemicals | 77,4 | 83,9 | 93,0 | 94,0 | 46,5 | |
| Other chemicals | 16,1 | 18,6 | 19,9 | 20,3 | 9,2 | |
| Rubber products | 14,0 | 14,4 | 14,5 | 15,2 | 7,9 | |
| Plastic products | 24,3 | 27,8 | 30,5 | 33,1 | 15,2 | |
| Glass & glass products | 10,1 | 11,4 | 12,7 | 13,6 | 6,1 | |
| Non-metallic minerals | 4,2 | 5,5 | 5,6 | 5,5 | 2,7 | |
| Basic iron & steel | 30,0 | 27,3 | 30,5 | 29,0 | 14,8 | |
| Basic non-ferrous metals | 12,2 | 14,4 | 20,4 | 20,9 | 10,5 | |
| Metal products excluding machinery | 7,6 | 8,2 | 9,2 | 9,3 | 4,8 | |
| Machinery & equipment | 202,9 | 214,5 | 230,1 | 238,8 | 113,3 | |
| Electrical machinery | 101,5 | 104,9 | 121,6 | 118,8 | 54,1 | |
| Television, radio & communication equipment* | 2,4 | 2,5 | 2,4 | 2,4 | 0,9 | |
| Professional & scientific equipment* | 23,5 | 24,8 | 27,6 | 29,7 | 13,8 | |
| Motor vehicles, parts & accessories | 88,5 | 88,9 | 91,4 | 84,9 | 46,2 | |
| Other transport equipment | 9,3 | 14,0 | 21,9 | 23,5 | 10,2 | |
| Furniture | 7,8 | 8,3 | 9,9 | 10,1 | 4,4 | |
| Other industries | 8,3 | 9,8 | 10,1 | 10,8 | 4,8 | |
| Undefined | 0,7 | 1,1 | 1,4 | 1,5 | 1,1 | |
_________________
Note:
(1) To June 30, 2017.
* Figures for historical periods have been restated on a basis consistent with figures presented for the most recent period ended December 31, 2017.
Source: Quantec.
Exports
South Africa’s exports to developed economies still consists mainly of mineral products, chemical products and base metals while the composition of exports to Africa consists mainly machinery and appliances, vehicles and parts and other manufactured goods. Since 2012, the fastest growing markets for South African exports have been Africa and Asia, with exports to these two continents accounting for almost 60% of total exports.
In the first three quarters of 2017, the value of exports improved by 3.6% compared with the same period in 2016, driven primarily by mineral products (34%), and cereals (42%). These were, however, off-set to some extent by significant declines in machinery (-11%), and vehicles, aircraft and vessels (-7%)
Improving economic prospects in advanced economies combined with sustained weakness in the Rand underpinned domestic exports, despite declining commodity prices and a slowdown in emerging market economies. Furthermore, trade and financial links with sub-Saharan Africa continue to grow, providing opportunities for South African firms to expand into the continent. The uneven global recovery as well as structural changes across economies meant that South Africa has had to diversify its export basket over time in order to help reduce its external vulnerabilities while at the same time taking advantages of the opportunities presented by economies growing at a faster pace.
Export performance in the first half of 2016 largely reflected global economic trends. The first six months of 2017 saw a 1.6 percentage point decline in exports to Africa compared to the same period in 2016, reflecting the deteriorating economic conditions in the region. Exports to Asia grew by 12.5% and exports to Europe by 3.8%, however exports to the Americas fell by 0.3 percent.
Almost 50% of overall exported vehicle products were destined for Europe, while Asia was the recipient of over 26% of precious metal exports. The volume of new vehicle exports is expected to continue to improve further in 2017 and 2018, which will positively reinforce the current account balance. Exports to China were weighed down by decreased demand for minerals and metal products.
Asia remains the largest recipient of South Africa’s goods, accounting for 32% of total exports in the nine months to September 2017, followed by Africaat 26%, and Europe at 25%. Exports to Asia totaled R266.8 billion while those to Africa totaled R216.7 billion in the year to September. Exports to these two regions have over time outpaced exports to the EU, which now account for only 25% of South Africa’s total exports from 43% in the mid-1990s. The US accounted for 9% of total domestic exports in the first three quarters of 2017, also depicting a declining trend.
Imports
Imports dropped by 1.2% in the first nine months of 2017 compared to the same period in 2015 reflecting weaker domestic demand. Imports for all categories, except for vehicles and mineral products increased. The effects of the drought were seen in the 40% increase in agricultural product, particularly vegetables which increased by 60%.
Approximately 44% of South African imports are from Asia, principally reflecting mineral imports. From Europe and America, South Africa mainly imports capital goods and the share of imports are 33% and 11%, respectively.
Current Account Deficit
South Africa’s current account deficit improved from 4.4% of GDP in 2015 to 3.3% in 2016. The improvement reflects the switching of the trade balance from a deficit into a surplus as a result of a rise in the value of exported goods which rose at a much faster pace than merchandise imports. Over the same period, the shortfall on the services, income and current transfer account widened slightly. The current account improved further in the first half of 2017 to 2.2% of GDP as a result of a further widening in the trade surplus.
South Africa’s Commitment to the WTO
South Africa is a founding member of the General Agreement of Trade and Tariffs (GATT) and has been an active participant for decades in the various GATT rounds of multilateral trade negotiations. In line with the need to open up the economy and increase competition in the economy, South Africa has liberalized most sectors of the economy since the 1990s.
South Africa has phased out support measures and subsidies inconsistent with the principles expressed in the GATT. This encourages South African industries to improve their competitiveness in domestic and foreign markets, while at the same time benefiting from cost reductions, supply side support measures and reduced import duties of trading partner countries that were negotiated in the Uruguay Round, as well as from certain market access preferences that have been granted to South Africa by Canada, the EU, Japan, Norway, Russia, Switzerland and the US.
South Africa enjoys beneficial trade agreements with a number of countries, both multilateral and bilateral. It enjoys preferential treatment under the African Growth and Opportunity Act when trading with the United States.
In Africa, South Africa has a number of free trade agreements with African countries. These include Botswana, Lesotho and Namibia, under the auspices of the Southern African Customs Union. South Africa is also an important member of the SADC, which, among other things, allows for preferential trading access to Zimbabwe. It is anticipated that the Tripartite Free Trade Agreement between the SADC, COMESA and EAC will help to facilitate market access and increased trade within the continent.
South Africa also has an agreement with the EU to export most of its goods duty free under the Trade Development and Cooperation Agreement and is in the process of negotiating a new trade agreement and a new economic partnership agreement. China, India and Brazil are also important markets for South Africa. Thus South Africa has strengthened diplomatic ties and trade cooperation with these countries.
Geographic Distribution of Trade
The following table sets forth the distribution of South Africa’s exports and imports of merchandise for the periods indicated.
Distribution of Merchandise Trade
| | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | (Rand billions) | |
| Exports | | | | | | | | | | | | | | | | | | | | | |
| China | | | 90,5 | | | | 84,4 | | | | 115,7 | | | | 94,9 | | | | 92,6 | | | | 100,1 | | | | 78,0 | |
| Germany | | | 41,4 | | | | 36,0 | | | | 38,9 | | | | 47,3 | | | | 66,7 | | | | 80,8 | | | | 63,5 | |
| United States | | | 57,9 | | | | 63,0 | | | | 64,8 | | | | 68,1 | | | | 76,6 | | | | 78,6 | | | | 62,1 | |
| Not allocated | | | 88,0 | | | | 86,5 | | | | 81,9 | | | | 76,2 | | | | 88,4 | | | | 80,7 | | | | 58,4 | |
| Japan | | | 52,7 | | | | 45,3 | | | | 51,8 | | | | 52,1 | | | | 50,1 | | | | 49,3 | | | | 39,8 | |
| India | | | 24,4 | | | | 30,6 | | | | 28,9 | | | | 40,7 | | | | 40,4 | | | | 47,7 | | | | 37,8 | |
| United Kingdom | | | 27,6 | | | | 26,3 | | | | 30,7 | | | | 35,9 | | | | 41,2 | | | | 45,8 | | | | 32,3 | |
| Mozambique | | | 16,9 | | | | 18,5 | | | | 26,1 | | | | 31,0 | | | | 27,8 | | | | 31,8 | | | | 27,5 | |
| Netherlands | | | 21,0 | | | | 22,7 | | | | 29,0 | | | | 32,5 | | | | 24,4 | | | | 28,0 | | | | 27,0 | |
| Zambia | | | 16,0 | | | | 19,6 | | | | 24,1 | | | | 26,9 | | | | 26,9 | | | | 27,8 | | | | 19,7 | |
| Zimbabwe | | | 16,8 | | | | 18,7 | | | | 22,0 | | | | 23,6 | | | | 23,9 | | | | 27,3 | | | | 18,7 | |
| Imports | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| China | | | 103,1 | | | | 119,9 | | | | 154,4 | | | | 167,6 | | | | 199,4 | | | | 199,0 | | | | 146,7 | |
| Germany | | | 77,5 | | | | 83,9 | | | | 103,2 | | | | 108,5 | | | | 122,3 | | | | 129,7 | | | | 97,5 | |
| United States | | | 57,4 | | | | 61,0 | | | | 63,0 | | | | 71,3 | | | | 76,3 | | | | 72,9 | | | | 55,7 | |
| Saudi Arabia | | | 32,3 | | | | 65,1 | | | | 77,4 | | | | 77,3 | | | | 33,6 | | | | 41,7 | | | | 38,6 | |
| India | | | 29,2 | | | | 37,7 | | | | 51,9 | | | | 49,4 | | | | 53,7 | | | | 45,6 | | | | 38,4 | |
| Japan | | | 34,4 | | | | 37,8 | | | | 39,4 | | | | 41,0 | | | | 39,9 | | | | 37,5 | | | | 27,8 | |
| Thailand | | | 16,5 | | | | 22,1 | | | | 26,5 | | | | 25,8 | | | | 26,3 | | | | 31,8 | | | | 24,6 | |
| United Kingdom | | | 29,7 | | | | 28,7 | | | | 32,1 | | | | 35,4 | | | | 35,0 | | | | 31,8 | | | | 22,8 | |
| Italy | | | 19,6 | | | | 21,1 | | | | 26,0 | | | | 28,6 | | | | 28,3 | | | | 27,1 | | | | 21,7 | |
| Nigeria | | | 22,7 | | | | 30,5 | | | | 34,9 | | | | 55,7 | | | | 38,6 | | | | 30,5 | | | | 19,7 | |
| Angola | | | 11,5 | | | | 23,0 | | | | 18,9 | | | | 21,8 | | | | 17,1 | | | | 18,7 | | | | 12,4 | |
_________________
Note:
(1) Through September 30, 2017.
Source: Quantec.
Balance of Payments (1)
The following table sets forth the balance of payments for South Africa for the periods indicated.
| | | For the year ended December 31 | | | For the
six
months ended
June 30 | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | (Rand millions) | |
| Current account | | | | | | | | | | | | | | | | | | |
Merchandise exports (f.o.b.)(2) | | | 751,332 | | | | 867,021 | | | | 942,826 | | | | 970,667 | | | | 1,053,628 | | | | 530,846 | |
Net gold exports(3) | | | 71,050 | | | | 63,887 | | | | 62,654 | | | | 67,663 | | | | 50,585 | | | | 32,385 | |
| Service receipts | | | 144,789 | | | | 162,183 | | | | 182,725 | | | | 191,605 | | | | 210,852 | | | | 102,911 | |
| Income receipts | | | 48,501 | | | | 64,441 | | | | 82,235 | | | | 98,016 | | | | 87,773 | | | | 37,873 | |
Less: Merchandise imports (f.o.b)(2) | | | 859,172 | | | | 1,003,604 | | | | 1,069,638 | | | | 1,076,290 | | | | 1,089,677 | | | | 534,331 | |
| Less: Payments for services | | | 155,243 | | | | 174,162 | | | | 184,828 | | | | 197,643 | | | | 219,056 | | | | 105,833 | |
| Less: Income payments | | | 136,837 | | | | 157,229 | | | | 183,779 | | | | 198,382 | | | | 208,243 | | | | 95,174 | |
Current transfers (net receipts (+))(4) | | | -31,369 | | | | -30,666 | | | | -34,448 | | | | -33,533 | | | | -27,458 | | | | -18,104 | |
| Balance on current account | | | -166,949 | | | | -208,129 | | | | -202,253 | | | | -177,897 | | | | -141,596 | | | | -49,427 | |
| Capital transfer account (net receipts (+)) | | | 239 | | | | 243 | | | | 236 | | | | 243 | | | | 241 | | | | 123 | |
| | | | | | | | | | | | | | | | | | For the six months ended June 30 | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| Financial account | | | | | | | | | | | | | | | | | | |
Net direct investment (Inflow (+)/outflow (-))(4) | | | 12,900 | | | | 15,942 | | | | -20,607 | | | | -51217 | | | | -16352 | | | | -26545 | |
Net incurrence of liabilities(5) | | | 37,428 | | | | 80,138 | | | | 62,627 | | | | 22065 | | | | 33397 | | | | 3879 | |
Net acquisition of financial assets(6) | | | -24,528 | | | | -64,196 | | | | -83,234 | | | | -73282 | | | | -49749 | | | | -30424 | |
| Net portfolio investment (Inflow (+)/outflow (-)) | | | 112355 | | | | 107191 | | | | 145774 | | | | 122622 | | | | 240604 | | | | 65318 | |
| Net incurrence of liabilities | | | 37428 | | | | 80138 | | | | 62627 | | | | 22065 | | | | 33397 | | | | 74730 | |
| Equity and investment fund shares | | | 59141 | | | | 69086 | | | | 100384 | | | | 105101 | | | | 25399 | | | | 25508 | |
| Debt securities | | | 122,945 | | | | 61,113 | | | | 46,560 | | | | 16189 | | | | 114467 | | | | 49222 | |
| Net acquisition of financial assets | | | -69731 | | | | -23008 | | | | -1170 | | | | 1332 | | | | 100738 | | | | -9412 | |
| Equity and investment fund shares | | | -57138 | | | | -22074 | | | | 8363 | | | | 20009 | | | | 108779 | | | | -3442 | |
| Debt securities | | | -12,593 | | | | -934 | | | | -9,533 | | | | -18677 | | | | -8041 | | | | -5970 | |
| Net financial derivatives (Inflow (+)/outflow (-)) | | | 14,378 | | | | 7,478 | | | | 16,409 | | | | 4,882 | | | | -13757 | | | | -1209 | |
| Net incurrence of liabilities | | | -213,869 | | | | -188,354 | | | | -194,842 | | | | -320,856 | | | | -499330 | | | | -59627 | |
| Net acquisition of financial assets | | | 228,247 | | | | 195,832 | | | | 211,251 | | | | 325,738 | | | | 485573 | | | | 58418 | |
| Net other investment (Inflow (+)/outflow (-)) | | | 70,824 | | | | 53,663 | | | | 121,821 | | | | 119042 | | | | -21144 | | | | -32492 | |
| Liabilities | | | 69,735 | | | | 50,412 | | | | 148,133 | | | | 72273 | | | | 1031 | | | | -29388 | |
| Assets | | | 1,089 | | | | 3,251 | | | | -26,312 | | | | 46769 | | | | -22175 | | | | -3104 | |
Reserve assets (Increase (-)/decrease (+))(7) | | | -8,955 | | | | -4,658 | | | | -16,602 | | | | 9,071 | | | | -40581 | | | | -1896 | |
| Balance on financial account | | | 201502 | | | | 179616 | | | | 246795 | | | | 204400 | | | | 148770 | | | | 3176 | |
| Memo item: Balance on financial account excluding reserve assets | | | 210457 | | | | 184274 | | | | 263397 | | | | 195329 | | | | 189351 | | | | 5072 | |
Unrecorded transactions(8) | | | -34792 | | | | 28270 | | | | -44778 | | | | -26746 | | | | -7415 | | | | 14863 | |
| Memo item: Balance on financial account excluding reserve assets including unrecorded transactions | | | 175,665 | | | | 212,544 | | | | 218619 | | | | 168583 | | | | 181936 | | | | 19935 | |
_________________
Notes:
| 1. | Data for the previous four years are preliminary and subject to revision. |
| 2. | Published customs figures adjusted for balance-of-payments purposes. |
| 3. | Commodity gold. Before 1981 net gold exports comprised net foreign sales of gold plus changes in gold holdings of the South African Reserve Bank and other banking institutions. |
| 4. | A net incurrence of liabilities (inflow of capital) is indicated by a positive (+) sign. A net disposal of liabilities (outflow of capital) is indicated by a negative (-) sign. A net acquisition of assets (outflow of capital) is indicated by a negative (-) sign. A net disposal of assets (inflow of capital) is indicated by a positive (+) sign. |
| 5. | Investment by foreigners in undertakings in South Africa in which they have individually or collectively in the case of affiliated organizations or persons at least 10.0% of the voting rights. |
| 6. | Investment by South African residents in undertakings abroad in which they have at least 10.0% of the voting rights. |
| 7. | Foreign-currency liabilities of the Reserve Bank with non-resident institutions and loans from the IMF are included in the calculation of reserve assets. An increase in reserve assets is indicated by a negative (-) sign and a decrease is indicated by a positive (+) sign. |
| 8. | Transactions on the current, capital transfer and financial accounts. |
Source: SARB.
Current Account
South Africa’s trade patterns and volumes changed notably during the past decade. These changes were brought about by, among other factors, uneven growth performance of the country’s most important trading‑partner countries in the aftermath of the most recent recession, substantial infrastructure development projects and a number of trade agreements concluded to promote international trade.
Notwithstanding various policy measures to enhance external competitiveness, to promote trade, and to raise the country’s growth performance, the South African economy has become more dependent on surplus saving from the rest of the world to finance the much-needed increase in gross fixed capital formation. The country’s import penetration ratio (i.e., the extent to which the country relies on merchandise imports to satisfy domestic expenditure) reached a peak in 2015. After declining in 2016, the import penetration ratio once again increased in the first half of 2017.
Owing to stronger growth in import volumes surpassing that of merchandise exports, the trade balance has been at a deficit since 2012. This deficit narrowed from 2013 to 2015 at which time weak terms of trade began to improve. In 2016, the deficit switched into a surplus and widened further in the first half of 2017.
The value of merchandise exports advanced steadily from 2003 up to the first half of 2017 with a brief interruption in 2009. The increase in export proceeds could largely be attributed to higher Rand prices of merchandise exports along with a slower increase in export volumes over the period. Notwithstanding the dwindling volume of net gold exports, domestic gold producers benefited from a surge in the international price of gold since 2006. Further to demand and supply conditions, the price of gold benefited during the past few years from the on-going uncertainty in global financial markets, as well as geopolitical tensions. The US dollar price of gold has however been declining since then and has recorded an average US$1,160 per fine ounce in 2015 before rebounding in 2016 to US$1,248. In the first half of 2017 the price receded somewhat to US$1,239. In Rand terms, the price of gold advanced for the most part at an even faster pace due to the depreciation in the exchange value of the Rand over the period, declining marginally in 2013 before increasing again from 2014 to 2016. The Rand price of gold decreased noticeably in the first half of 2017 to R16,374 as a slightly lower US dollar price of the metal was depressed further by the higher external value of the Rand.
The value of merchandise imports increased during the period of 2010 to 2016 owing mainly to strong domestic demand. In the first half of 2017, the value did not change materially. Although manufactured goods remained the largest component of merchandise imports in value terms, it declined as a ratio of total merchandise imports, from 73.9% in 2003 to roughly 67.0% in 2012 and the subsequent two years. Manufactured goods as a percentage of total merchandise imports was 73.8% in 2016. The three main subcategories of manufactured imports, which together account for approximately 73.0% of the total import value of manufactured goods, are machinery and electrical equipment, vehicles and transport equipment, and chemical products.
After displaying almost no change in 2015, the deficit of the services, income and current transfer account of the balance of payments increased by almost 12.0% in 2016. The increased deficit can be attributed mainly to lower gross dividend receipts which declined by almost 20.0% since 2015. The lower gross dividend receipts originated from companies with a direct investment relationship. Therefore, higher net income payments and to a lesser extent net service payments contributed to the increase of the overall services, income and current transfer account in 2016. However, expressed as percentage of GDP, the deficit increased marginally from 3.5% in 2015 to 3.6% in 2016.
In the first half of 2017, both net service payments and net current transfer payments increased when compared to the first half of 2016. The increase in current transfer payments was mainly as a result of higher current transfer payments to the Southern African Customs Union (SACU) member states.
Conversely, the deficit on the income account improved somewhat as both gross dividend receipts and gross dividend payments declined, however, the decrease in dividend payments outpaced that of dividend receipts. These developments contributed to the overall services, income and current transfer account improving by 2.8% in the first half of 2017.
Financial Account
Following a period of uncertainty regarding the outcome of the Sovereign debt crisis in the Eurozone which began in 2011, Global financial markets continued to be volatile in the second quarter of 2015, affected by various factors and characterized by phases of alternating ‘risk-off’ and ‘risk-on’ trading sprees. Among the factors influencing sentiment were the continued strengthening of the US economy along with expectations of an imminent interest rate increase in the second half of 2015, the intensifying Greek debt crisis, the slump in the Chinese stock market as well as the further weakening of commodity prices. Domestically, relatively sluggish economic growth in the first half of 2015 amid on-going electricity-supply disruptions and other structural impediments dampened international investors’ sentiment towards acquiring domestic financial assets. After having registered a capital inflow of R33.1 billion in the first quarter of 2015, the financial account of the balance of payments (including reserve assets but excluding unrecorded transactions) recorded a much smaller inflow of R3.6 billion in the second quarter. A significant outflow of capital was evident in the other investment category, despite the continuing injection of liquidity in Europe and Japan. However, on a net basis, direct and especially portfolio investment registered capital inflows in the second quarter of 2015.
On an annual basis, overall capital inflow amounted to R142.3 billion (or 3.6% of GDP) in 2015, somewhat less than the R150.1 billion (or 4.0% of GDP) recorded in 2014. Inward foreign direct investment decreased from R62.6 billion in 2014 to R22.6 billion in 2015. Cumulatively, inward foreign portfolio investment increased from R73.3 billion in 2014 to R105.6 billion in 2015. Other inward foreign investment decreased from R148.1 billion in 2014 to R69.8 billion in 2015.
During the same period, outward foreign direct investment flows decreased from R83.2 billion in 2014 to R68.3 billion in 2015. Outward foreign portfolio investment increased from R24.2 billion in 2014 to R50.1 billion in 2015. Outward foreign portfolio investment changed from an outflow of R26.3 billion in 2014 to an inflow of R48.8 billion in 2015.
The net inflow of capital on South Africa’s financial account of the balance of payments (including reserve assets but excluding unrecorded transactions) decreased from R52.3 billion in the third quarter of 2016 to R5.6 billion in the fourth quarter of 2016. On a net basis, only portfolio investment recorded an inflow, while the other functional categories recorded outflows in the fourth quarter of 2016. Nevertheless, the cumulative inflows on the financial account amounted to R163.2 billion in 2016 compared to R204.4 billion in 2015. For 2016 as a whole, financial account inflows represented 3.8% of GDP compared to 5.0% in 2015.
South Africa’s direct investment liabilities recorded inflows of R6.5 billion in the fourth quarter of 2016 following an inflow of R7.0 billion in the third quarter. The inflow during the fourth quarter was due primarily to an increase in the share of non-resident equity investment in domestic companies, which was partly offset by the repayment of short-term loans by domestic subsidiaries to foreign parent companies.
Inward portfolio investment flows into South Africa amounted to only R16.3 billion in the fourth quarter of 2016, following inflows of R51.0 billion and R55.5 billion in the second and third quarter respectively. Non-resident investors accumulated debt securities to the value of R28.3 billion in the fourth quarter of 2016 compared to an inflow of R44.7 billion in the third quarter. The acquisition of debt securities in the fourth quarter of 2016 largely reflected the issuance of two international bonds of a combined value of US$3 billion by the national government, of which approximately US$0.7 billion was offset in a switch and tender offer. In addition, US$1 billion worth of international bonds were issued by a private sector company. These inflows were partly offset by the disposal of domestic Rand-denominated debt securities by foreign investors in anticipation of a further rise in US bond yields following expectations of more increases in the federal funds rate. On an annual basis, inward investment into South African debt securities amounted to R128.8 billion in 2016, significantly more than the R16.2 billion in 2015.
South Africa experienced other investment outflows of R4.8 billion in the fourth quarter of 2016 following an inflow of R26.3 billion in the third quarter. Other investment liabilities decreased as the repayment of short-term foreign loans by the domestic banking sector and the private nonbanking sector more than offset an increase in deposits of non-residents with domestic banks. Inflows related to other investment liabilities were fairly low in 2016, amounting to a meagre R1.0 billion compared to inflows of R72.3 billion in 2015. In 2016, other investment inflows were weighed down by the repayment of long-term foreign loans by the domestic banking sector and the repayment of short-term foreign loans by the domestic private non-banking sector.
South African entities’ direct investment abroad increased by R19.5 billion in the fourth quarter of 2016, from R1.4 billion in the third quarter, as domestic private sector companies further increased their equity holdings in foreign subsidiaries and associates. The increase in equity investment resulted largely from the acquisition of a foreign company by a domestic health care group. Notwithstanding the firm increase in outward foreign direct investment flows in the final quarter of 2016, this category recorded outflows of R49.7 billion in 2016 following outflows of R73.2 billion in 2015.
South African residents disposed of foreign portfolio assets to the value of R80.5 billion in the fourth quarter of 2016 following the acquisition of such assets to the value of R19.2 billion in the third quarter. The decline in foreign portfolio assets arose from the payment to domestic shareholders for their share in a company in the alcoholic beverages sector, as the company was acquired by a foreign entity. South African investors sold foreign portfolio assets amounting to R100.7 billion in 2016 compared to a marginal disposal of portfolio assets to the value of R1.3 billion in 2015.
Outflows related to other investment assets amounted to R17.5 billion in the fourth quarter of 2016 following an outflow of R22.5 billion in the third quarter, as the domestic banking sector increased its deposits with banks abroad and the domestic private sector extended loans to non-residents. For 2016 as a whole, other investment outflows amounted to R22.2 billion compared to inflows of R46.8 billion in 2015.
In 2017, the net inflow of capital on South Africa’s financial account of the balance of payments (including reserve assets but excluding unrecorded transactions) declined from R37.6 billion in the first quarter of 2017 to R3.2 billion in the second quarter. On a net basis, direct investment, other investment and financial derivatives recorded outflows while portfolio investment recorded inflows during the second quarter of 2017.
South Africa’s direct investment liabilities recorded an inflow in the second quarter of 2017, which could be attributed to loan funding to domestic enterprises from their parent companies. However, the sale of a significant stake in a company in the banking sector by a foreign direct investor partly countered the inflow. South African entities’ direct investment abroad advanced during the second quarter of 2017 as a domestic resources company acquired a large platinum-mining company abroad.
Portfolio investment liabilities recorded inflows of R74.7 billion in the second quarter of 2017 driven by a search for yield in emerging markets, including South Africa. Capital inflows in the second quarter reflected the acquisition of domestic debt securities and, to a lesser extent, equity securities by foreign investors. South African residents acquired foreign portfolio assets to the value of R9.4 billion in the second quarter of 2017. The acquisition of foreign portfolio assets mainly took the form of an increase in debt securities acquired by the domestic private sector, which was partly offset by a decrease in the acquisition of foreign equity securities.
Other investment liability outflows resulted from large repayments on short-term foreign currency-denominated loans by the domestic banking sector while outflows related to other investment assets were a result of a slower pace of increase in foreign deposits of the domestic banking and non-banking private sectors.
The following table sets forth capital movements into and out of South Africa for the periods indicated.
Financial account(1)
| | | | | | | | | | | | | | | | | | For the six months ended June | |
| Rand (million) | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
Net incurrence of liabilities2 | | | | | | | | | | | | | | | | | | |
Direct investment3 | | | 37,428 | | | | 80,138 | | | | 62,627 | | | | 22065 | | | | 33397 | | | | 3879 | |
| Public corporations | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Banking sector | | | 1,970 | | | | 20,160 | | | | 1,121 | | | | 3257 | | | | -9844 | | | | -14739 | |
| Private sector | | | 35,458 | | | | 59,978 | | | | 61,506 | | | | 18808 | | | | 43241 | | | | 18618 | |
| Portfolio investment | | | 182086 | | | | 130199 | | | | 146944 | | | | 121290 | | | | 139866 | | | | 74730 | |
| Monetary authorities | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Public authorities | | | 118,611 | | | | 61,489 | | | | 51,563 | | | | 3,287 | | | | 141112 | | | | 48182 | |
| Public corporations | | | 8,906 | | | | 8,320 | | | | 2,613 | | | | 16262 | | | | -11316 | | | | -163 | |
| Banking sector | | | 4829 | | | | 11700 | | | | 16545 | | | | 3169 | | | | 11239 | | | | 23114 | |
| Private sector | | | 49740 | | | | 48690 | | | | 76223 | | | | 98572 | | | | -1169 | | | | 3597 | |
| Financial derivatives | | | -213,869 | | | | -188,354 | | | | -194,842 | | | | -320,856 | | | | -499330 | | | | 59627 | |
| Banking sector | | | -213,869 | | | | -188,354 | | | | -194,842 | | | | -320,856 | | | | -499330 | | | | 59627 | |
| Other investment | | | 69,735 | | | | 50,412 | | | | 148,133 | | | | 72273 | | | | 1031 | | | | -29388 | |
Monetary authorities4 | | | 1,646 | | | | 953 | | | | 4,483 | | | | -1,606 | | | | 286 | | | | 5034 | |
| Public authorities | | | -3,646 | | | | -1,763 | | | | -4,210 | | | | -3,925 | | | | -3350 | | | | -1014 | |
| Public corporations | | | 20,004 | | | | 12,765 | | | | 17,836 | | | | 18960 | | | | 25544 | | | | 1866 | |
| Banking sector | | | 45,060 | | | | 16,964 | | | | 123,106 | | | | 33443 | | | | 3362 | | | | -38349 | |
| | | | | | | | | | | | | | | | | | For the six months ended June | |
| Rand (million) | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| Private sector | | | 6,671 | | | | 21,493 | | | | 6,918 | | | | 25401 | | | | -24811 | | | | 3075 | |
| Special Drawing Rights | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Net acquisition of financial assets5 | | | | | | | | | | | | | | | | | | | | | | | | |
Direct investment6 | | | -24,528 | | | | -64,196 | | | | -83,234 | | | | -73282 | | | | -49749 | | | | -30424 | |
| Public corporations | | | 0 | | | | -110 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Banking sector | | | -117 | | | | 28 | | | | 11 | | | | 18 | | | | 20 | | | | 36 | |
| Private sector | | | -24,411 | | | | -64,114 | | | | -83,245 | | | | -73300 | | | | -49769 | | | | -30460 | |
| Portfolio investment | | | -69731 | | | | -23008 | | | | -1170 | | | | 1332 | | | | 100738 | | | | -9412 | |
| Public corporations | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Banking sector | | | -739 | | | | 12620 | | | | 3491 | | | | -3069 | | | | 21048 | | | | 274 | |
| Private sector | | | -68992 | | | | -35628 | | | | -4661 | | | | 4401 | | | | 79690 | | | | -9686 | |
| Financial derivatives | | | 228,247 | | | | 195,832 | | | | 211,251 | | | | 325,738 | | | | 485573 | | | | 58418 | |
| Banking sector | | | 228,247 | | | | 195,832 | | | | 211,251 | | | | 325,738 | | | | 485573 | | | | 58418 | |
| Other investment | | | 1,089 | | | | 3,251 | | | | -26,312 | | | | 46769 | | | | -22175 | | | | -3104 | |
Monetary authorities7 | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Public authorities | | | 1,659 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Public corporations | | | -187 | | | | -3,895 | | | | 1,802 | | | | -3199 | | | | -1228 | | | | 851 | |
| Banking sector | | | 9,832 | | | | 14,216 | | | | -15,850 | | | | 69078 | | | | -10337 | | | | 1450 | |
| Private sector | | | -10,215 | | | | -7,070 | | | | -12,264 | | | | -19110 | | | | -10610 | | | | -5405 | |
Reserve assets8 | | | -8,955 | | | | -4,658 | | | | -16,602 | | | | 9,071 | | | | -40581 | | | | -1896 | |
_________________
Notes:
| 1. | Identified capital movements. |
| 2. | A net incurrence of liabilities (inflow of capital) is indicated by a positive (+) sign. A net disposal of liabilities (outflow of capital) is indicated by a negative (-) sign. |
| 3. | Investment by foreigners in undertakings in South Africa in which they have individually or collectively in the case of affiliated organizations or persons at least 10.0% of the voting rights. |
| 4. | These transactions comprise the liabilities of the South African Reserve Bank and the Corporation for Public Deposits. |
| 5. | A net acquisition of financial assets (outflow of capital) is indicated by a negative (-) sign. A net disposal of financial assets (inflow of capital) is indicated by a positive (+) sign. |
| 6. | Investment by South African residents in undertakings abroad in which they individually or collectively in the case of affiliated organizations or persons have at least 10.0% of the voting rights. |
| 7. | Including the long-term assets of the South African Reserve Bank and the Corporation for Public Deposits. |
| 8. | Foreign-currency liabilities of the Reserve Bank with non-resident institutions and loans from the IMF are included in the calculation of reserve assets. An increase in reserve assets is indicated by a negative (-) sign and a decrease is indicated by a positive (+) sign. |
Source: SARB.
The following table sets forth total foreign direct investment by South African entities and total foreign direct investment in South Africa by foreign entities for the periods indicated. Data beyond 2014 is not yet available.
Foreign Direct Investment
| | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | |
| | | Rand (millions) | |
| South African foreign direct investment | | | | | | | | | | | | | | | |
| Europe | | | 368,858 | | | | 429,366 | | | | 495,681 | | | | 602,615 | | | | 806,494 | |
| Africa | | | 185,518 | | | | 200,407 | | | | 232,292 | | | | 298,255 | | | | 347,669 | |
| Americas | | | 72,082 | | | | 84,249 | | | | 103,572 | | | | 128,716 | | | | 111,326 | |
| Asia | | | 127,313 | | | | 200,619 | | | | 478,849 | | | | 590,681 | | | | 1,050,253 | |
| Oceania | | | 36,475 | | | | 35,586 | | | | 39,359 | | | | 70,804 | | | | 88,807 | |
| Other | | | 27 | | | | 27 | | | | 102 | | | | 18 | | | | 5 | |
| Total | | | 790,273 | | | | 950,254 | | | | 1,349,855 | | | | 1,691,089 | | | | 2,404,554 | |
| Foreign direct investment in South Africa | | | | | | | | | | | | | | | | | | | | |
| Europe | | | 1015,325 | | | | 1,085,479 | | | | 1,252,027 | | | | 1,246,913 | | | | 1,542,225 | |
| Americas | | | 129,522 | | | | 132,882 | | | | 135,534 | | | | 150,947 | | | | 160,468 | |
| Asia | | | 1,015,324 | | | | 115,923 | | | | 143,558 | | | | 137,954 | | | | 162,986 | |
| Africa | | | 43,688 | | | | 42,668 | | | | 45,575 | | | | 53,370 | | | | 63,692 | |
| Oceania | | | 10,780 | | | | 12,603 | | | | 18,371 | | | | 18,835 | | | | 40,438 | |
| Other | | | 469 | | | | 469 | | | | 695 | | | | 633 | | | | 423 | |
| Total | | | 1,297,898 | | | | 1,390,024 | | | | 1,595,760 | | | | 1,608,652 | | | | 1,970,412 | |
Source: SARB.
South Africa’s total outstanding external debt increased from US$142.8 billion at the end of December 2016 to US$152.1 billion at the end of March 2017, mainly due to substantial purchases of Rand-denominated government bonds by non-residents as well as an increase in short-term foreign-currency debt of the non-monetary private sector. Foreign currency denominated external debt increased from US$70.7 billion at the end of December 2016 to US$74.3 billion at the end of March 2017, while Rand-denominated external debt, expressed in US dollars, increased from US$72.1 billion to US$77.8 billion over the same period. South Africa’s gross external debt, expressed in Rand terms, increased notably from R1 947 billion to R2 048 billion over this period. The ratio of Rand-denominated external debt to total external debt increased from 50.5% at the end of December 2016 to 51.2% at the end of March 2017.
Total foreign currency-denominated external debt increased in the first quarter of 2017, largely as a result of increases in drawings of loans by public corporations and the non-monetary private sector. The foreign currency-denominated debt balances of the government and the monetary sector remained broadly unchanged over the period.
Rand-denominated external debt, expressed in US dollars, increased substantially in the first quarter of 2017 as a result of net purchases of domestic government bonds by non-residents and, to a lesser extent, drawings of short-term loans by the non-monetary private sector.
South Africa’s total external debt as a ratio of annual GDP increased slightly from 48.3% at the end of December 2016 to 48.5% at the end of March 2017. Likewise, the ratio of external debt to export earnings increased marginally from 149.8% to 150.3% over the same period.
Foreign Currency-Denominated Debt of South Africa(1)
| | | As of December 31, | | | As of June 30, | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | Rand (million)(2) | |
| Foreign-currency-denominated debt | | | | | | | | | | | | | | | | | | |
| Public sector | | | 76,482 | | | | 94,584 | | | | 95,040 | | | | 119,470 | | | | 110,539 | | | | 121,071 | |
Monetary sector(3) | | | 117,323 | | | | 126,772 | | | | 212,425 | | | | 310,550 | | | | 261,621 | | | | 217,274 | |
| Non-monetary private sector | | | 134,045 | | | | 191,513 | | | | 210,377 | | | | 286,784 | | | | 263,338 | | | | 299,256 | |
| Bearer bonds and notes | | | 185,330 | | | | 227,710 | | | | 262,833 | | | | 362,771 | | | | 328,059 | | | | 317,479 | |
| Long-term loans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total foreign-currency-denominated debt | | | 513,180 | | | | 640,579 | | | | 780,675 | | | | 1,079,575 | | | | 963,557 | | | | 955,080 | |
_________________
Notes:
| (1) | Excluding blocked Rand accounts, ordinary and non-redeemable preference shares, quoted domestic debentures and quoted domestic loan stock. |
| (2) | Valued at middle-market exchange rates as of the end of period. |
| (3) | Including lending to other sectors. |
Source: SARB.
Reserves and Exchange Rates
Since the abolition of the Financial Rand System and the dual exchange rate in 1995, South Africa has had a unitary market-determined exchange rate that applies to both current and capital transactions between residents and non-residents.
In 2012 and 2013, the currencies of most emerging-market economies were adversely affected by the uncertainty that arose from unresolved economic issues in the Eurozone countries, and the unsatisfactory and partial solution to the reduction of the fiscal deficit in the US. Over and above these factors, lower international prices of some key export commodities, concerns about the sustainability of the financing of South Africa’s current-account deficit and on-going tension in the domestic labor market put further pressure on the domestic currency.
Investor sentiment towards emerging-market economies and in particular South Africa improved somewhat towards the end of the first quarter of 2014. Indications that the Chinese authorities are committed to boosting economic activity in China and on-going efforts to boost the economic recovery in the euro area in the second quarter of 2014 furthermore buoyed the currencies of many emerging-market economies over the period.
The nominal effective exchange rate of the Rand increased, on balance, by 2.5% in the first quarter of 2016 compared with a decline of more than 10.0% in the fourth quarter of 2015. While the trade-weighted value of the Rand declined somewhat in early January 2016, it subsequently strengthened more forcefully to the end of March 2016. Although the South African Rand appreciated against most major currencies over the period, it appreciated notably against the British pound due to concerns about Britain’s possible exit from the European Union. Supporting the Rand during the first quarter of 2016 were expectations of a more moderate tightening of US interest rates in the medium-term as well as a slight recovery in the prices of gold and platinum. The external value of the Rand on balance strengthened slightly further in the second quarter of 2016, appreciating by 0.8% against the US dollar and by 2.1% on a trade-weighted basis. In April 2016, the trade-weighted exchange rate of the Rand increased, on balance, by 4.0% supported by a weaker US dollar. It depreciated markedly by 8.3% in May 2016 as hawkish comments made by some US Federal Reserve officials revived expectations of an early US interest rate increase. On a trade-weighted basis the exchange value of the Rand increased by 7.7% from the end of May to June 23, 2016, buoyed by the confirmation of South Africa’s investment grade credit rating by credit rating agencies. However, in the three days following the surprise outcome of the British vote to leave the European Union, the exchange rate of the Rand depreciated by 2.8% on renewed risk aversion amid heightened uncertainty in the global financial markets. Overall, the domestic currency appreciated, on balance, by 7.1% from the end of May 2016 to the end of June 2016.
The South African Rand strengthened further in the third quarter, appreciating on balance, by 5.7% against the US dollar and by 5.6% on a trade-weighted basis. The local currency appreciated substantially against the British pound in the aftermath of the British vote to leave the European Union. In July 2016, the exchange value of the Rand appreciated, on balance, by 4.3% against the US dollar and by 4.6% on trade-weighted basis as expectations of monetary support from major central banks increased following the British vote to exit the European Union. The local currency lost ground in August 2016, depreciating by 1.9% against the US dollar as the public dispute between the Minister of Finance and the Hawks lingered. In September 2016, The South African Rand recovered lost ground, appreciating by 3.2% on trade-weighted basis. Supporting the Rand was investors’ search for higher yield amid expectations that interest rates in advanced economies will remain low for long. The external value of the Rand continued its upward trend in the fourth quarter of 2016, appreciating on balance by 7.4% on a trade-weighted basis. However, local political risks heightened in October 2016 after the Minister of Finance was summoned to appear in court. As a result of which, the South African Rand depreciated against most currencies. The South African Rand recovered in November after the charges against the Minister of finance were withdrawn. Sentiment towards the South African Rand improved further in December 2016 as two prominent international credit rating agencies decided to keep South Africa’s sovereign credit ratings unchanged.
The nominal effective exchange rate of the Rand (NEER) lost ground and weakened, on balance, by 0.7% in the first quarter of 2017. From the end of December 2016 to the end of February 2017, the NEER increased by 3.2% and by a further 4.0% up to March 27, on expectations of improved economic growth prospects for both the global and domestic economy, the continued search for yield by international investors and broad-based US dollar weakness. However, from March 27 to 31, 2017 the NEER declined by 7.4% as political risks resurfaced after the Minister of Finance was recalled from an international investor road show and subsequently relieved of his duties in a cabinet reshuffle. The NEER strengthened by 0.3% and 0.4% in April and May 2017; respectively; supported by amongst others, better-than-expected domestic retail sales data as well as positive foreign trade data. The South African Rand reversed all the gains when it depreciated 0.7% in June following release of disappointing domestic unemployment and GDP data. Lingering domestic political uncertainties also weighed down on sentiment towards the local currency. Following a stable second quarter, the NEER declined, on balance, by 4.6% in the third quarter of 2017. The Rand’s downward trend continued in October and November. Depressing the local currency over this period was weakening institutional framework as political risks persisted, as well as expectations of a US interest rate hike.
The following table sets forth, for the periods indicated, the exchange rate of the Rand per Dollar.
Rand
(Against the US Dollar)
| Year | | Low | | | High | | | Average | | | Period End | |
| 2011 | | | 6.5962 | | | | 8.5423 | | | | 7.2531 | | | | 8.1319 | |
| 2012 | | | 7.4777 | | | | 8.9432 | | | | 8.2099 | | | | 8.4838 | |
| 2013 | | | 8.4478 | | | | 10.4849 | | | | 9.6502 | | | | 10.4675 | |
| Year | | Low | | | High | | | Average | | | Period End | |
| 2014 | | | 10.2815 | | | | 11.7415 | | | | 10.8444 | | | | 11.5719 | |
| 2015 | | | 11.2955 | | | | 15.5742 | | | | 12.7507 | | | | 15.5742 | |
| 2016 | | | 13.2747 | | | | 16.8927 | | | | 14.7088 | | | | 13.6282 | |
| January 2017 | | | 13.2268 | | | | 13.7373 | | | | 13.5629 | | | | 13.5219 | |
| February 2017 | | | 12.9128 | | | | 13.4933 | | | | 13.1955 | | | | 13.0141 | |
| March 2017 | | | 12.3576 | | | | 13.4599 | | | | 12.9382 | | | | 13.4599 | |
| April 2017 | | | 12.9132 | | | | 13.9065 | | | | 13.4662 | | | | 13.3066 | |
| May 2017 | | | 12.9086 | | | | 13.6653 | | | | 13.2679 | | | | 13.0941 | |
| June 2017 | | | 12.7054 | | | | 13.1058 | | | | 12.8967 | | | | 13.0817 | |
| July 2017 | | | 12.9136 | | | | 13.5996 | | | | 13.1379 | | | | 13.0480 | |
| August 2017 | | | 13.0274 | | | | 13.4937 | | | | 13.2309 | | | | 13.0274 | |
| September 2017 | | | 12.8128 | | | | 13.6071 | | | | 13.1345 | | | | 13.4943 | |
Source: SARB.
Change in Reserves
South Africa’s overall balance-of-payments position was in surplus in the amount of R9 billion in 2012, before declining to R4.7 billion in 2013. In 2014 the country’s overall balance-of-payments position registered a surplus of R16.6 billion, before swinging to a deficit of R9.1 billion in 2015. The gross gold and other foreign‑exchange reserves, measured in US Dollar, decreased to US$49.6 billion at the end of 2013 from US$50.7 billion at the end of 2012, and declined further to US$49.1 billion at the end of 2014. The country’s foreign reserves continued the downward trend in 2015, declining to US$45.8 billion. Expressed in Rand terms, gross gold and other foreign exchange reserves increased from R520.2 billion at the end of 2013 to R568.5 billion at the end of 2014, and increased further to R713.9 billion at the end of 2015, on account of the depreciation of the exchange rate of the Rand. The ratio of imports covered by reserves improved, albeit marginally from 4.3 months of import cover at the end of December 2013 to 4.5 months at the end of December 2014, before increasing further to 4.9 months at the end of December 2015.
South Africa’s international reserves decreased by R7.8 billion in the third quarter of 2016, following a decline of R1.2 billion in the second quarter. The country’s international reserves subsequently increased by R53.8 billion in the fourth quarter of 2016. In the first quarter of 2017, South Africa’s international reserves recorded a decrease of R12.7 billion, followed by increases of R1.9 billion and R33.3 billion in the second and third quarters respectively. Measured in US dollar, the value of South Africa’s gross gold and other foreign reserves (i.e., the international reserves of the Bank before accounting for reserve-related liabilities) increased from US$46.4 billion at the end of June 2016 to US$47.2 billion at the end of September 2016 primarily due to foreign currency loans entered into by the Bank. The short-term foreign currency loans were required to facilitate certain transactions by the Bank in the foreign exchange market as part of its operational responsibilities. The country’s gross gold and other foreign reserves increased further, albeit slightly, to US$47.4 at the end of December. However, South Africa’s gross gold and other foreign reserves declined to US$46.6 at the end of March 2017, before recovering to US$47.4 at the end of June. South Africa’s gross gold and other foreign reserves increased to US$49.4 billion at the end of September, mainly reflecting proceeds from foreign debt issuance by government. The country’s gross gold and other foreign reserves increased further to US$50.3 billion at the end of November. The level of import cover (i.e., the value of gross international reserves relative to the value of imports of goods and services and income payments) decreased from 5.3 months at the end of March 2016 to 5.4 months at the end of June 2016. Between July and December 2016, the level of import cover fluctuated between 5.2 and 5.3 months. The level of import cover however, decreased to 5.0 months at the end of March 2017 and further to 4.9 months at the end of June 2017, before increasing to 5.3 months at the end of September 2017. South Africa’s international liquidity position, which hovered around US$41 billion since the beginning of the year, increased to US$42.0 billion at the end of September 2016, before decreasing to US$40.8 billion at the end of December. The country’s international liquidity position increased to US$41.4 at the end of March 2017 and further to US$42.2 at the end of June 2017, before increasing to US$42.6 at the end of September 2017 and remained unchanged at the end of November 2017.
The following table sets forth the gold and foreign exchange reserves of South Africa in each of the periods indicated.
Foreign Exchange Reserves
| | | For the year ended December 31, | | | As of September 30, | |
| | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | Rand (million) | |
SARB gold reserves(1) | | | 51,076 | | | | 56,982 | | | | 50,621 | | | | 55,887 | | | | 66,692 | | | | 73,876 | | | | 70,004 | |
| Foreign exchange reserves | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SDRs(2) | | | 22,284 | | | | 23,873 | | | | 29,603 | | | | 32,119 | | | | 42,157 | | | | 38,683 | | | | 37,906 | |
Other(3) | | | 324,459 | | | | 350,087 | | | | 439,965 | | | | 480,518 | | | | 605,044 | | | | 542,809 | | | | 558,684 | |
| Gross gold and other foreign reserves | | | 397,819 | | | | 430,942 | | | | 520,189 | | | | 568,524 | | | | 713,893 | | | | 655,368 | | | | 666,634 | |
_________________
Notes:
| (1) | Until March 5, 2005, gold reserves were valued at 90.0% of the last ten London fixing prices preceding end of period. From March 6, 2005, gold reserves are valued at market price taken at 14:30 on each valuation date. |
| (3) | Non-gold reserves are valued at the middle market exchange rate applicable at end of period. |
Source: SARB.
PUBLIC FINANCE
Background
South Africa’s public finances comprise all finances in the three spheres of government, namely, national, provincial, and local government. Finances in the national and provincial spheres of government consist of all transfer payments from the national government while those in the local government sphere of government consist of transfer payments from national government as well as own revenue.
The Division of Revenue Act (Dora) provides for the equitable division of revenue raised nationally among the national, provincial and local spheres of government and the responsibilities of all three spheres pursuant to such division; and to provide for matters connected therewith. The objects of DORA are to: (a) provide for the equitable division of revenue raised nationally among the three spheres of government; (b) promote predictability and certainty in respect of all allocations to provinces and municipalities, in order that provinces and municipalities may plan their budgets over a multi-year period and thereby promote better coordination between policy, planning and budgeting; and (c) promote transparency and accountability in the resource allocation process by ensuring that all allocations are reflected in the budgets of provinces and municipalities and by ensuring that the expenditure of conditional allocations is reported on by the receiving provincial departments and municipalities. Government finances are presented in two ways, each highlighting key aspects of the budget. The main budget determines national government’s borrowing requirement. It consists of two elements. The first, appropriations by Parliament through budget votes, are mainly for national departments and include transfers to provinces, local government and public entities. The second, direct charges against the National Revenue Fund, include the provincial equitable share and debt‑service costs, as well as the salaries of judges and public representatives. The Consolidated Budget provides a fuller picture of government’s contribution to the economy. It takes into account the main budget as well as spending of provinces, social security funds and public entities financed from their own revenue.
Provincial budgets are largely financed by the provincial equitable shares and conditional grants from the main budget. But provinces supplement these funds with their own revenues, such as gambling taxes, hospital fees and sales of goods and services. Also excluded from the consolidation is expenditure by metros and other large municipalities, which is financed from their own revenue, such as property rates and services charges. The Consolidated Government Budget includes 185 public entities. These include large entities such as South African National Roads Agency Limited, the Passenger Rail Agency, the South African Revenue Services and agencies that provide bulk water infrastructure. Public entities receive some transfers from the main budget but are also financed from own revenue. State-owned companies that function as standalone operations largely on a commercial basis, such as Eskom and Transnet, are not included in the consolidated accounts. Social security funds include Unemployment Insurance Fund, compensation funds and the Road Accident Fund. They are financed mainly by statutory levies or contributions but receive some transfers from the main budget.
National, provincial and local governments are responsible for delivering public services. Some of these services are the exclusive responsibility of one level of government, while others – known as concurrent functions – are shared. Nationally raised revenue is divided with the aim of providing for appropriate funding at each level of government – for example by taking into account their service delivery responsibilities and other sources of revenue available to them. In the 2017/18 fiscal year, national government departments are to be allocated 47.6% of available funds after debt costs, and the contingency reserve has been provided for. Provincial government is to be allocated 43.4% of available funds, mainly for education, health and social welfare. Local government is to receive 9.1% of the available funds, primarily for the provision of basic services to low-income households. Most municipalities fund the majority of their spending through charges and taxes.
Between the 2013/14 and 2019/20 fiscal years, there was an allocation of R8.2 trillion for the three spheres of government. National government accounted for R4 trillion (47.9%), provincial government R3.6 trillion (43.2%) and local government R738 billion (8.9%). Equitable share accounted to R370.1 million (50.1%) of the total local government allocation.
General government finances in South Africa represent a consolidation of the following: the National Budget; the budgets of the nine provincial governments; extra-budgetary accounts and funds; social security funds; and the budgets of local authorities. The National Government, provincial governments, social security funds, Reconstruction and Development Program (RDP) accounts and extra-budgetary accounts are jointly referred to in this document as the “Consolidated Government Budget.” The Consolidated Government Budget includes transfer payments to local governments but does not constitute a consolidation of local government accounts. Municipalities, universities, polytechnics and various extra-budgetary funds derive substantial shares of their revenue from fees and charges or other sources. The Consolidated Government Budget presents a broader measure of government finances in South Africa. The public sector borrowing requirement shows the budget balance for the entire public sector, including general government and the non-financial public enterprises.
The borrowing powers of provincial and local governments are regulated by law. Provinces and municipalities generally may borrow for capital projects only. Under the Constitution, provinces have their own limited taxing powers and they are responsible for preparing their own budgets and for ensuring prudent financial management at the provincial level. Provinces receive agreed shares of nationally collected revenue and a framework for ensuring an equitable division to local government. The National Treasury introduced generally recognized accounting practices and uniform treasury norms and standards, the prescription of measures to ensure transparency and expenditure control in all spheres of government, and operational procedures for borrowing, guarantees, procurement and oversight over various national and provincial revenue funds.
In terms of Section 230 of the Constitution, provinces are allowed to take out loans for either current expenditure, in the form of a bridging loan that must be repaid within a 12-month period, or capital projects. The Borrowing Powers of Provincial Governments Act of 1996 (Borrowing Powers Act) lists the conditions under which a province may take out loans for capital projects. The Act stipulates that loans must be approved by a loan coordinating committee, which is chaired by the Minister of Finance. Loans may be taken out as direct borrowing from the national government or from private banks and financial institutions. Provinces may not take out loans in foreign currency unless they are specifically authorized to do so by the Minister of Finance. As provinces are accountable in their own right, the National Government does not guarantee loans taken out by provincial governments and will not bail out any province that is unable to repay its loans.
The PFMA regulates the National Government’s financial administration and outlines the various roles of the National Treasury, the Minister of Finance (as head of the National Treasury), the National Revenue Fund, accounting officers, auditors, executive authorities, public entities and other government officials. This legislation also addresses, among other things, regulation of loans, guarantees and other commitments as well as penalties for financial misconduct. Legislation aimed at regulating local government spending, known as the Municipal Finance Management Act of 2003 (MFMA), took effect in July 2004. The legislation seeks to secure sound and sustainable management of the financial affairs of municipalities and other institutions in the local sphere of government, and to establish treasury norms and standards for the local sphere of government.
Municipalities can borrow over the long term to finance capital projects, acquire capital assets or refinance existing debt pursuant to Section 46 of the MFMA. Short-term borrowing (not for more than 12 months) is also possible for operational purposes only. However, the debt needs to be repaid within the financial year in which the debt was incurred pursuant to Section 45 of the MFMA. Furthermore, the Regulatory Framework for Municipal Borrowing (1999) recommends that every municipality should adopt a written debt policy when planning to issue debt. The policy assists in determining borrowing limits that a municipality can cope with. The MFMA further requires that all municipalities seek written comments from the relevant provincial and National Treasury in terms of proposed debt.
As of June 30 2017, the total balance on long term borrowing for all municipalities was R59.7 billion as reported by lenders to municipalities. The total long term debt reported by municipalities is slightly higher at R62 billion. Of the amount reported by the lenders, long term loans represented R41.4 billion or 69.0% while the remaining 31.0% was made up of R18.3 billion in bonds. Just over half of long-term municipal debt is held by public sector lenders (R32.1 billion or 54.0%) while the private sector holds a total of R27.6 billion or 46.0%.
The Development Bank of Southern Africa with 41.0% is the largest lender to municipalities followed by the private commercial banks accounting for a total of 24.0%. International development finance institutions, (particularly the Agence Française de Développement), hold about 7.0% of municipal long term debt. The remaining 28.0% is held by a specialist lender, INCA, and other lenders (including pension funds and insurers). New long-term borrowing for the 2016/17 municipal financial year totaled R8.1 billion which was 69.8% of the budgeted borrowing.
The Constitution provides that the provincial and local governments are entitled to such percentages of nationally raised revenue as may be determined by Parliament (allocated among the provinces on an equitable basis). The largest allocation to municipalities is the “local government equitable share” (LGES) which is allocated through a formula that is primarily based on how many poor households a municipality provides services to. The budgets of the provincial governments are financed through such nationally collected revenue, together with other allocations or grants from the National Government, the provinces’ own revenue collections, unspent balances from previous fiscal years and proceeds from loans for capital outlays. The Constitution provides for the assignment of taxation powers to provinces within a national, regulated framework that is intended to ensure that all taxes are consistent with national economic policy. The Provincial Tax Regulation Process Act of 2001 provides a framework through which provinces can introduce and collect certain fees and taxes. These include automobile license and traffic fees, hospital fees, gambling fees and other user charges and levies. The Financial and Fiscal Commission, a constitutionally established body, has the responsibility of monitoring and overseeing intergovernmental fiscal relations. Additionally, the Intergovernmental Fiscal Relations Act of 1997 established the Budget Council and the Budget Forum to consider intergovernmental budget issues.
The 2016 Community Survey (the largest survey between censuses) confirmed that progress continues to be made in extending access to electricity, water, sanitation and refuse removal services. The Government’s aim is to ensure that all citizens receive at least a basic level of amenities. Drawing on international benchmarks, minimum standards of 50kWh of free electricity and 6,000 litters of free water per month per household have been adopted. However, the level of free services provided to poor households varies, depending on local circumstances and municipal capacity. The national budget contributes to the financing of household amenities through the local government equitable share, which is mainly allocated for provision of free basic services. There has been a significant growth in allocations to the local government equitable share in recent years, from R20 billion in 2009/10 to R57 billion in 2017/18. Over the Medium Term Expenditure Framework, allocations will increase to R62.7 billion in 2018/19, and R69.3 billion in 2019/20.
The new local government equitable share formula which was implemented in the 2013/14 financial year, also taking into account the 2011 census figures, provides a monthly subsidy of R359 in 2017/18 for every household with a monthly income less than the value of two state old age pensions, which is about 59.0% of all households. The previous formula for the local government equitable share targeted 47.0% of households. This threshold is not an official poverty line or a required level to be used by municipalities in their own indigence policies. If municipalities choose to provide fewer households with free basic services than they are funded for through the local government equitable share, then their budget documents should clearly state the reasons for that and whether they consulted with the community on that policy. The formula also makes provision for a contribution towards the administration and governance costs of running a municipality. Allocations also take account of the greater ability of some municipalities to cross‑subsidize services to their poor households and less funding is allocated to these (relatively wealthy) municipalities. While census and community survey data indicates steady progress towards universal access to electricity and clean water, achievement of free basic service standards still has some way to go.
The 2016 Community Survey shows that rapid population growth and internal migration continue to be defining features of South African demographics. This data assists in improving the targeting of municipal funding. To account for the growth in households each year, the number of households per municipality used in the LGES formula is updated annually based on the growth in households reflected in each province in the General Household Survey conducted by Statistics South Africa. The new equitable share formula reflects these changes and makes allocations for free basic services more transparent. Municipalities need to prioritize funding for the provision and maintenance of these services. The funding and provision of infrastructure are also important requirements for continued improvement in basic service delivery. The expansion of infrastructure needed to deliver basic services is funded through conditional grants allocated to municipalities. It is not possible to give households free access to services if the supporting infrastructure – such as water distribution systems – is not in place.
Unemployment Insurance Fund (UIF)
In 2001, the Minister of Labor tabled legislation to strengthen the administration of the UIF, target benefits more effectively to the poor and extend the coverage of the fund. Since the UIF was given an estimated amount of R605 million in 2001 to address its outstanding financial debts, it has been experiencing positive financial performances. The UIF was able to meet its operational expenditure requirement and recorded an operating cash surplus of R13.2 billion in fiscal year 2017. The March 2017 actuarial evaluation indicated that the UIF is in a sound position to meet its cash-flow requirements over the next ten years for a wide range of possible scenarios. The UIF had capital and reserves amounting to R133.3 billion as of March 31, 2017. It is estimated that the UIF’s financial performance surplus prior to reserving over the next three fiscal years will be R6.8 billion in fiscal year 2018, R7.1 billion in fiscal year 2019 and R7.7 billion in fiscal year 2020.
The projected increase in the operational surplus is mainly attributable to a revision in the estimates for contributions due to an increase in the earnings threshold or ceiling as well as salary increases of contributors. The Unemployment Insurance Amendment Bill, 2015 has been passed by the National Assembly and was implemented in January 2017. The key changes introduced by this Bill include the extension of the period of payment of benefits to the contributor from eight to 12 months with a flat rate payment after eight months; and allows beneficiaries to claim as long as the beneficiary has worked for 13 weeks prior to claiming, regardless of when they last claimed; extends the period during which dependents may apply for benefits on behalf of a deceased contributor from six to 18 months; extends the period in which a contributor can lodge a claim from six to 12 months and the date of unemployment is deemed to be the date when the claimant applies for benefits; and the threshold period after which a person can make a claim for illness benefits has been reduced from more than 14 days to more than seven days.
The UIF is committed to bringing services closer to its client base in all provinces and provides services at 125 Department of Labor centers with processing functions and 823 visiting points. A priority for the medium term is the recruitment and reallocation of appropriate resources to manage the new decentralized business environment. The UIF added 292,767 new employees to its database, raising the total to 9,340,740 registered employees as at fiscal year 2017. A total of 1,638,079 employers are registered with the UIF as at fiscal year 2017, an increase of 58,351 new employers compared to fiscal year 2016. These employers are categorized mainly as commercial, domestic and taxi employers, with the majority in the commercial sector.
In response to the global economic crisis, the UIF (which formed part of the National Government’s Framework for South Africa’s Response to the International Economic Crisis) continues to play a pivotal role in schemes designed to inject funding into job creation and retention. The UIF issued R2.8 billion in placement bonds with the Industrial Development Corporation (IDC) as at the end of fiscal year 2016. The UIF/IDC bond is expected to save and create a combined total of 53,140 UIF paying jobs, in addition to the R1.2 billion committed by the UIF towards the Training Layoff Scheme which is designed to provide support to companies that are in distress due to the economic downturn with training and skills development as important elements of this response. The UIF spent R145.5 million for the Training of 1,786 Unemployed UIF beneficiaries at TVET Colleges and SETAs in order to improve their chances of being reintegrated back into the labor market and to Social Plan Funding. In addition, the Fund trained 100 aspiring entrepreneurs and assisted 49 companies and saved 4,760 jobs with the turnaround solutions program.
Compensation Fund (CF)
The CF supports employees who experience loss of income as a result of injuries, death or disease in the course of employment. Funds are raised through assessed levies on companies.
While the CF remains financially sound with an accumulated surplus of R27 billion as of March 31, 2017. The CF registered 129,123 claims and paid benefits to the value of R2.9 billion and medical claims amounting to R2.6 billion in fiscal year 2017. The CF recorded a 10.0% increase in the number of registered employers at the end of fiscal year 2017 with a 17.3% increase in revenue in fiscal year 2017. The increase in revenue is attributed to increased penalty charges due to employer’s non-compliance with return of earnings submission timelines. In response to the dissatisfaction expressed by the public regarding the unjustifiably long turnaround time in processing claims for occupational injuries and diseases, the CF is speeding up the process of restructuring the Fund and upgrading its information technology infrastructure. To ensure equity of access to services and to improve the claims turnaround time, the CF has finalized the decentralization of its services to all nine provinces in fiscal year 2017. The Compensation Board reviewed existing benefits in fiscal year 2017, increasing the salary ceiling by 7.0% from R377, 097 to R403, 500 per annum; all pensions payable from the Compensation Fund increased by 6.0%. The maximum monthly earnings level on which all types of disablement is based increased by 7.0% while the minimum monthly value in respect of free food and quarters increased by 6.0%.
Road Accident Fund (RAF)
Understanding that there is a need to reform the unlimited liability system of compensation for road accident victims and supported by the reports of the RAF Commission in 2002, the Government set out on a reform path. In 2005, Parliament passed the RAF Amendment Act, which provided for a limited liability scheme to ensure the viability of the Fund. Five years after the promulgation of the RAF Amendment Act, the estimated reduced liability is R12.9 billion. The cabinet approved the strategy for the reform of the RAF in June 2006.
The Cabinet approved the Road Accident Benefit Scheme Bill in March 2017. While the productivity of claims finalized has improved, the RAF continues to receive 202,000 new claims in 2016/17. As a result, outstanding claims fell to 173 740 at March 31, 2017. The accumulated deficit has increased to R180 billion at the end of 2016/17.
South African Social Security Agency (SASSA)
The South African Social Security Agency derives its mandate from the South African Social Security Agency Act (2004). It became functional in 2006, taking over the mandate of administration and payments of grants from the provincial departments. The core business of the agency is to administer and pay social grants to beneficiaries. Social assistance means assistance or a financial award in the form of grants provided by the National Government to residents who are unable to sustain themselves. The agency is also required to develop and implement policies, programs, standard operating procedures and systems for an efficient and effective social assistance benefits administration system.
Social assistance and welfare services have grown rapidly in recent years. About 17.2 million of South Africans received social grants as at the end of October 2017, up from 16.9 million in September 2016. This growth is expected to reach 18.1 million South Africans by 2020/21 due to the higher life expectancy and in order to ensure all eligible children benefit from the grant.
Over the spending period ahead, an annual average of R12 billion per annum will be added to social assistance budgets to accommodate the increase in beneficiaries and ensure that the value of grants keeps pace with inflation over the MTEF period. Social assistance expenditure will remain stable as a percentage of GDP.
The Budget Process
The National Government’s fiscal year ends on March 31 of each year. The Minister of Finance and National Treasury prepare the Budget with the assistance of the Minister of Finance’s Committee on the Budget and approval of Cabinet. The National Treasury is responsible for the fiscal framework within which the budget is constructed and also coordinates the preparation of expenditure estimates. South Africa ranked third out of 102 countries in the 2015 release of the Open Budget Index by the International Budget Partnership. The survey measures the quality of budget transparency, public participation in the budget processes and institutional oversight. South Africa was one of only four countries that performed solidly across all three categories. It was in the top five on measures of transparency and oversight by the legislature and audit institutions, but came out sixth for public participation.
The Minister of Finance presents the National Budget to Parliament in February of each year, with provincial treasuries separately presenting their budgets shortly after the National Budget is proposed. Since the presentation of the 1998-1999 Budget, Parliament has been presented each year with a set of three-year spending plans, but is asked to vote only on the budget for the coming year. Each year’s National Budget is based on certain key economic assumptions regarding, among other things, GDP growth, inflation, employment growth, taxable income, private consumption expenditure, government consumption expenditure, import and export levels and investment.
In addition to presenting expenditure estimates to Parliament, the Minister of Finance is responsible for estimating the revenue that existing taxes and tax rates will raise and for proposing tax amendments, if any. The National Budget then takes the form of an appropriations bill authorizing National Government expenditures. The appropriations bill originates in the National Assembly and then goes to the Standing Committee on Appropriations of the National Assembly and the Select Committee on Appropriations of the National Council of Provinces before being debated and finally passed by both houses of Parliament towards the end of the Parliamentary session.
In April 2009, Parliament assented to the Money Bills Amendment Procedure and Related Matters Act of 2009 (the Money Bills Act). The Money Bills Act reconciles Parliament’s legislative and oversight mandate provided for in the Constitution and provides for, among others, a procedure to amend money bills before Parliament. In general, the new Money Bills Act is viewed as a legislative milestone that will afford Parliament powers to adjust the National Budget.
In exercising its powers Parliament must ensure that: (a) there is an appropriate balance between revenue, expenditure and borrowing; (b) levels of debt and debt interest cost are reasonable; (c) the cost of recurrent spending is not deferred to future generations; and (d) there is adequate provision for spending on infrastructure development, overall capital spending and maintenance. In addition, Parliament must consider the short-, medium- and long-term implications of the fiscal framework, division of revenue and the long-term growth potential of the economy and the development of the country and must take into account cyclical factors that may impact on the prevailing fiscal position, public revenue and expenditure.
As in the case of the National Budget, the budgets of the provincial governments have been accompanied by three-year expenditure projections since 1999. The MTEF is intended to illustrate forward trends in expenditure priorities and to provide a firmer foundation for fiscal planning and review purposes.
The Minister of Finance is required to indicate each year how the expected deficit between consolidated government expenditure and revenue is to be financed or how any surplus is to be applied. The annual Consolidated Government Budget deficit financing requirement is principally met through the issue of long‑term fixed and non-fixed-rate National Government debt in the domestic capital market. The South African bond market is well-developed and highly liquid, and has attracted considerable foreign investor interest. The National Government also borrows from time to time in foreign capital markets, in which case the interest due and final repayment must be repaid in foreign currency.
During the course of each fiscal year, government departments and other spending agencies are held to the spending plans approved in the National Budget by a system of expenditure controls under the direction of the National Treasury. Subsequently, audits of all government accounts provide Parliament and the public with verification of the uses to which public funds have been put. The auditor-general, a constitutionally independent official, supervises this auditing process. Accountability is further promoted by the breakdown of expenditures into “votes” for particular government departments, whose director-generals are the accounting officers responsible for these monies. Further breakdowns into departmental programs and into so-called economic classification items (for example, employee compensation and payments for capital assets) serve to indicate in more detail the commitment of funds to defined purposes.
The Treasury Committee, comprising the President, Deputy President, the Minister of Finance, the Deputy Minister of Finance and other Cabinet members who have been assigned the task of assisting the Cabinet in evaluating additional expenditure requests that arise during the course of a budget year, seeks to ensure prudent fiscal management. In order for the Treasury Committee to approve an additional expenditure request, the expenditure must be deemed to be unforeseeable and unavoidable, or to fall within another legally prescribed category to qualify for inclusion in the Adjustments Budget. A contingency reserve is set aside each year of the MTEF to deal with such requests. Such amendments to some elements of the current year’s budget and the consolidated budget (in departmental allocations) are made by Parliament in an Adjustments Budget towards the middle of the fiscal year.
Also around the end of October of each year, the Minister of Finance presents the MTBPS. This policy statement outlines the priority policy proposals and the new MTEF that will underpin the next year’s budget.
Medium Term Budget Policy Statement (MTBPS)
The 2017 MTBPS sets out the macroeconomic, fiscal and public-expenditure priorities for the medium term. South Africa’s budget is strongly aligned with constitutional imperatives and is highly progressive. Over the past four years, government has followed a path of measured fiscal consolidation, aiming to stabilize the debt-to-GDP ratio by reducing spending and introducing tax increases. This strategy met with some success, reflected in a narrowing primary deficit, but debt has continued to rise as a share of GDP given that economic growth rates have declined.
The audited tax revenue outcome of R1.144 trillion for fiscal year 2016 was R30.7 billion lower than the original budget estimate in February 2016 and R0.3 billion lower than the revised 2017 Budget Review estimate. This is despite an R18 billion package of tax policy measures designed to boost revenue in 2016/17. In part, the shortfall reflected unanticipated weaknesses in economic performance. Imports contracted, impacting on customs duties and import VAT. Personal income tax, value-added tax (VAT) and corporate income tax also performed below projections. These shortfalls were offset by higher-than-projected dividend withholding taxes amounting to R5.4 billion. This windfall may have resulted from artificial declarations of dividend payments before the effective date to avoid the higher tax rate introduced in the 2017 Budget.
This year, a sharp deterioration in revenue collection and further downward revisions to economic growth projections have significantly eroded the government’s fiscal position. Tax revenue is projected to fall short of the 2017 Budget estimate by R50.8 billion in the current year, the largest under-collection since the 2009 recession.
At the same time, expenditure is expected to breach the ceiling by R3.9 billion in the current year. This is the result of large appropriations to forestall calls against guaranteed debt by the creditors for South African Airways (SAA) and the South African Post Office (SAPO). In combination, these allocations amount to R13.7 billion. The government is considering the disposal of assets to offset these appropriations. Should such disposals take place, the breach will not occur. As a result of these developments, the consolidated budget deficit will widen to 4.3% of GDP in 2017/18, against a 2017 Budget target of 3.1% of GDP.
In the 2017 MTBPS, consolidated government revenue is projected to increase from R1.477 trillion in 2018/19 to R1.709 trillion in 2020/21. Gross tax revenue is projected to fall short of the 2017 Budget estimates by R69.3 billion in 2018/19 and R89.4 billion in 2019/20. Lower revenue growth in the years ahead reflects the downward revisions to the growth of major tax bases – wages, corporate profits and household consumption spending – as well as expectations of lower tax buoyancy.
Government spending priorities continue to align with the NDP, as elaborated in the medium-term strategic framework and the Mandate Paper for 2018. Spending priorities over the medium term focus on education and skills development, health, social protection, social and economic infrastructure, and support for job creation. Over the medium term, consolidated expenditure will grow by an annual average of 7.3%, from R1.6 trillion in 2017/18 to R1.9 trillion in 2020/21. Consolidated non-interest expenditure growth is expected to outpace consumer price inflation by an average of about 1.3% over the next three years. Debt-service costs as an expenditure category grows the fastest at 11.0%.
The deficit is projected to stabilize at 3.9% of GDP over the medium term. Gross loan debt is expected to increase from R2.5 trillion or 54.2% of GDP in 2017/18 to R3.4 trillion or 59.7% of GDP in 2020/21. Absent higher economic growth or additional steps to narrow the budget deficit, the debt-to-GDP ratio is unlikely to stabilize over the medium term. Government is acutely aware of the dangers of unchecked debt accumulation.
Over the next three years, government will adhere strictly to the spending limits it has set for itself. To offset revenue shortfalls and reduce borrowing, the contingency reserve has been pared down to R3 billion in 2018/19, R5 billion in 2019/20 and R8 billion in 2020/21. New spending priorities will have to be met by funds reallocated from within existing limits with any adjustments to the ceiling matched by revenue increases. Furthermore, the Minister of Finance has announced a package of 14 confidence-boosting measures to address short-term challenges facing the economy. Progress has been made in stabilizing state-owned companies, ensuring fiscal sustainability, boosting financial sector reforms, leveraging public procurement and addressing policy uncertainty. Moreover, further reductions in the ceiling may be required to stabilize national debt. A team of Cabinet ministers reporting directly to the President – the Presidential Fiscal Committee – is considering a range of proposals to bring the public finances back onto a sustainable path. A combination of fiscal measures and economic interventions is needed to grow the economy, address immediate challenges facing the public finances and reduce long-term risks. Announcements are expected to be made at the time of the 2018 Budget.
There is a resource allocation of R1.254 trillion across the three spheres of government in fiscal year 2017. This increases to R1.536 trillion by fiscal year 2020. The proposed division of revenue continues to prioritize funding of services for poor communities. Allocations to provinces focus on education, health and other social services. Allocations to local government subsidize the delivery of free basic services to low-income households, and the infrastructure needed to deliver those services. The local share of nationally raised revenue grows from 9.0% in fiscal year 2017 to 9.3% by fiscal year 2020, and the provincial share also rises from 42.9% in fiscal year 2017 to 43.2% by fiscal year 2020. Over this period, national government resources grow by 6.5%, provincial resources by 7.2% and local government resources by 8.3%.
2018 MTEF
The 2017 MTBPS has announced the 2018 MTEF, which sets out the consolidated expenditure framework for fiscal year 2017/18 through to fiscal year 2020/21. The framework consists of revised baseline estimates reflecting the government’s current spending priorities, including education, community development, social development and health services (which take up the largest of planned expenditure). Strong growth over the future spending period can be seen in post-school education and training, community development, health, basic education and social protection.
2017-2018 National Budget and Consolidated Government Budgets
2017-2018 National Budget
In February 2017, the South African Minister of Finance submitted the 2017-2018 National Budget to Parliament. The 2017-2018 National Budget and the three-year MTEF estimates supported the long-term health of the public finances with a series of revenue and expenditure measures to narrow the budget deficit and stabilize debt. These measures included:
| · | Reducing the expenditure ceiling by R10 billion in 2017/18 and R16 billion in 2018/19 through reduced national department operating budgets; lower transfers to entities, provinces and local government; and reallocations. |
| · | Introducing tax policy measures to generate an additional R28 billion in revenue in 2017/18, mainly through higher personal income taxes and fuel levies. |
The combination of a lower expenditure ceiling and higher taxes was expected to narrow the consolidated budget deficit from an estimated 3.4% of GDP in 2016/17 to 2.6% by 2019/20. South Africa’s development objectives, expressed in the NDP, rely on achieving higher economic growth and using public resources effectively. If low growth were to persist, however, the government would have to adjust its spending plans, and determine which policies to implement, downsize or delay. A significant portion of funding has been reprioritized to safeguard the provision of social services, bolster public health programs, mitigate the increasing costs of higher education for students from low- and middle-income households, and maintain infrastructure investment. Apart from debt-service costs, post-school education was the fastest-growing spending category, followed by health and social protection. The 2017-2018 National Budget allocated 52.5% of nationally raised resources to provinces and local government over the medium term.
The 2017 National Budget estimated 2017/18 gross tax revenue (after proposal) to amount to R1.265 trillion. Government proposed a new top personal income tax bracket of 45.0% for taxable incomes above R1.5 million per year. About 100,000 taxpayers will be affected by the new bracket. Increasing the top marginal rate without concurrently raising the dividend withholding tax rate would increase the arbitrage opportunity for some individuals to pay themselves with dividends rather than salaries. Government therefore increased the dividend withholding tax rate from 15.0% to 20.0%. To support middle-income households, the duty-free threshold for residential property transfers was raised to R900,000. These proposals were projected to raise R28 billion, and increase the tax burden from 26.0% of GDP in 2016/17 to 26.7% in 2017/18.
The 2017-2018 National Budget estimated that total national revenues for fiscal year 2017 will amount to R1.242 trillion. National budget expenditures for fiscal year 2017 were estimated at R1.409 trillion. Consequently, the main budget deficit, which is government’s net borrowing requirement, was estimated at R166.8 billion, or 3.5% of GDP. The main budget primary balance was expected to move into a surplus from 2018/19 reaching 0.3% of GDP in 2019/20.
2017-2018 Consolidated Government Budget
The amounts reflected in the budget votes of the national departments whose functions are partially devolved to the provinces do not illustrate total allocations to such functions. By contrast, the Consolidated Government Budget presents a more relevant measure of trends and priorities in government finances in South Africa, particularly in the socio-economic field, and hence the tables and discussion below focus on this measure of government expenditure. See “Public Finance—Background.”
In the 2017 National Budget, the 2017-2018 consolidated government expenditure was expected to increase from R1.445 trillion in 2016/17 to R1.814 trillion by 2019/20. This represents real annual average growth of 1.9%. The consolidated government budget deficit was estimated to narrow from 3.4% of GDP in 2016/17 to 2.6% by 2019/20. The deficit on the Consolidated Government Budget is lower than that in the main National Budget due to surpluses in the provinces and the social security funds, primarily the Unemployment Insurance Fund and Compensation Funds.
The estimated 2017-2018 Consolidated Government Budget continues to build on policy priorities established in 2001, with a special emphasis on growth-enhancing spending as well as spending programs that target the poor and vulnerable groups. Growth in all categories of social services spending reflects the National Government’s commitment in improving the social well-being of South Africans.
Education remained the largest category of expenditure, followed by economic affairs and human settlements and municipal infrastructure. Health care expenditure, defense, public order and safety and social protection also remained significant. Consolidation in the midst of prolonged low growth calls for more vigilance in budgeting, and steps are being taken across government to improve budget execution and the in-year monitoring of spending. National and provincial departments and municipalities submit monthly reports to the National Treasury. To strengthen oversight, a process has been initiated for all national public entities to report on a quarterly basis. This will improve transparency and provide early warnings of budget deviations.
The following table sets forth the Consolidated Government Expenditure as set out in the 2017 MTBPS for the periods indicated.
Consolidated government expenditure, 2014-20162
| Fiscal year | | 2014 | | | 2015 | | | 2016 | |
R billion | | Outcome | | | % of Total | | | Outcome | | | % of Total | | | Outcome | | | % of Total | |
| Current payments | | | 744.3 | | | | 60.3 | % | | | 805.0 | | | | 59.0 | % | | | 939.6 | | | | 59.6 | % |
| Compensation of employees | | | 437.4 | | | | 35.5 | % | | | 473.1 | | | | 34.7 | % | | | 549.3 | | | | 34.8 | % |
| Goods and services | | | 185.5 | | | | 15.0 | % | | | 195.6 | | | | 14.3 | % | | | 220.0 | | | | 13.9 | % |
| Interest and rent on land | | | 121.4 | | | | 9.8 | % | | | 136.3 | | | | 10.0 | % | | | 170.4 | | | | 10.8 | % |
| of which Debt-service costs | | | 114.8 | | | | 9.3 | % | | | 128.8 | | | | 9.4 | % | | | 146.5 | | | | 9.3 | % |
| Transfers and subsidies | | | 398.1 | | | | 32.3 | % | | | 435.8 | | | | 31.9 | % | | | 505.1 | | | | 32.0 | % |
| of which Capital transfers | | | 59.7 | | | | 4.8 | % | | | 62.0 | | | | 4.5 | % | | | 62.0 | | | | 3.9 | % |
| Provinces and municipalities | | | 95.8 | | | | 7.8 | % | | | 107.9 | | | | 7.9 | % | | | 120.7 | | | | 7.7 | % |
| Departmental agencies and accounts | | | 24.2 | | | | 2.0 | % | | | 23.4 | | | | 1.7 | % | | | 24.9 | | | | 1.6 | % |
| Higher education institutions | | | 25.5 | | | | 2.1 | % | | | 29.0 | | | | 2.1 | % | | | 38.1 | | | | 2.4 | % |
| Foreign governments and international organizations | | | 1.9 | | | | 0.2 | % | | | 2.1 | | | | 0.2 | % | | | 2.0 | | | | 0.1 | % |
| Public corporations and private enterprises | | | 26.8 | | | | 2.2 | % | | | 28.8 | | | | 2.1 | % | | | 31.4 | | | | 2.0 | % |
| Non-profit institutions | | | 26.7 | | | | 2.2 | % | | | 28.4 | | | | 2.1 | % | | | 31.9 | | | | 2.0 | % |
| Households | | | 197.1 | | | | 16.0 | % | | | 216.3 | | | | 15.9 | % | | | 256.2 | | | | 16.2 | % |
| Payments for capital assets | | | 85.5 | | | | 6.9 | % | | | 93.1 | | | | 6.8 | % | | | 102.4 | | | | 6.5 | % |
| Buildings and other capital assets | | | 63.7 | | | | 5.2 | % | | | 76.1 | | | | 5.6 | % | | | 79.5 | | | | 5.0 | % |
| Machinery and equipment | | | 21.8 | | | | 1.8 | % | | | 17.0 | | | | 1.2 | % | | | 22.9 | | | | 1.5 | % |
| Payments for financial assets | | | 5.6 | | | | 0.5 | % | | | 30.3 | | | | 2.2 | % | | | 30.3 | | | | 1.9 | % |
| Consolidated expenditure | | | 1 233.5 | | | | 100.0 | % | | | 1 364.2 | | | | 100.0 | % | | | 1 577.4 | | | | 100.0 | % |
_________________
Note:
| (1) | These figures were estimated by the National Treasury and may differ from data published by Stats SA and the SARB. The numbers in this table are not strictly comparable to those published in previous years due to the reclassification of expenditure items for previous years. Data for the history years have been adjusted accordingly. |
Source: National Treasury.
The following table sets forth the Consolidated Government Expenditure as set out in the 2016 MTBPS for the periods indicated. Please note that, while the line items may differ from the 2013-2015 Consolidated Government Budget table, the categories remain the same and can be compared.
Consolidated Government Expenditure by function & economic classification1, 2014/15-2020/21
R billion | | | 2014/15 | | | | 2015/16 | | | | 2016/17 | | | | 2017/18 | | | | 2018/19 | | | | 2019/20 | | | | 2020/21 | | | Average annual growth 2017/18 - 2020/21 | |
| | | Outcome | | | Revised | | | Medium-term estimates | | | | |
| Functional Classification | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Learning and culture | | | 251.5 | | | | 271.0 | | | | 295.5 | | | | 317.8 | | | | 340.7 | | | | 367.3 | | | | 395.7 | | | | 7.6 | % |
| Basic education | | | 187.8 | | | | 202.3 | | | | 217.1 | | | | 230.8 | | | | 249.8 | | | | 267.2 | | | | 286.5 | | | | 7.5 | % |
| Post-school education and training | | | 54.6 | | | | 59.0 | | | | 68.7 | | | | 76.7 | | | | 80.1 | | | | 88.8 | | | | 97.0 | | | | 8.2 | % |
| Arts, culture, sport and recreation | | | 9.1 | | | | 9.7 | | | | 9.7 | | | | 10.4 | | | | 10.8 | | | | 11.3 | | | | 12.1 | | | | 5.3 | % |
| Health | | | 148.4 | | | | 163.5 | | | | 176.3 | | | | 189.7 | | | | 204.5 | | | | 220.0 | | | | 235.5 | | | | 7.5 | % |
| Peace and security | | | 165.7 | | | | 175.6 | | | | 184.8 | | | | 195.5 | | | | 206.2 | | | | 220.7 | | | | 235.5 | | | | 6.4 | % |
| Defense and state security | | | 43.2 | | | | 46.1 | | | | 47.9 | | | | 49.8 | | | | 51.4 | | | | 54.7 | | | | 58.2 | | | | 5.3 | % |
| Police services | | | 78.4 | | | | 83.4 | | | | 86.9 | | | | 93.7 | | | | 100.0 | | | | 106.8 | | | | 114.2 | | | | 6.8 | % |
| Law courts and prisons | | | 36.9 | | | | 38.9 | | | | 41.3 | | | | 43.6 | | | | 46.5 | | | | 49.7 | | | | 53.1 | | | | 6.7 | % |
| Home affairs | | | 7.1 | | | | 7.2 | | | | 8.7 | | | | 8.4 | | | | 8.3 | | | | 9.5 | | | | 10.0 | | | | 6.1 | % |
| Community development | | | 156.3 | | | | 171.9 | | | | 181.5 | | | | 193.7 | | | | 210.2 | | | | 226.5 | | | | 243.2 | | | | 7.9 | % |
| Economic development | | | 161.7 | | | | 171.4 | | | | 176.7 | | | | 194.6 | | | | 202.2 | | | | 217.7 | | | | 229.9 | | | | 5.7 | % |
| Industrialization and exports | | | 31.6 | | | | 34.3 | | | | 32.3 | | | | 33.2 | | | | 36.0 | | | | 38.9 | | | | 41.2 | | | | 7.5 | % |
| Agriculture and rural development | | | 24.4 | | | | 25.2 | | | | 25.9 | | | | 26.5 | | | | 28.1 | | | | 30.1 | | | | 31.8 | | | | 6.3 | % |
| Job creation and labor affairs | | | 17.0 | | | | 16.6 | | | | 17.9 | | | | 20.0 | | | | 21.3 | | | | 22.5 | | | | 23.9 | | | | 6.1 | % |
| Economic regulation and infrastructure | | | 74.3 | | | | 78.9 | | | | 84.0 | | | | 97.4 | | | | 98.7 | | | | 107.1 | | | | 112.6 | | | | 5.0 | % |
2 Note to NT: Please update – Mandatory disclosure requirement.
| Innovation, science and technology | | | 14.5 | | | | 16.4 | | | | 16.6 | | | | 17.5 | | | | 18.1 | | | | 19.2 | | | | 20.4 | | | | 5.2 | % |
| General public services | | | 55.7 | | | | 84.0 | | | | 66.3 | | | | 77.4 | | | | 69.6 | | | | 72.7 | | | | 77.1 | | | | -0.1 | % |
| Executive and legislative organs | | | 11.7 | | | | 12.8 | | | | 13.1 | | | | 14.8 | | | | 16.2 | | | | 16.9 | | | | 17.7 | | | | 6.1 | % |
| Public administration and fiscal affairs | | | 37.0 | | | | 61.0 | | | | 41.3 | | | | 50.3 | | | | 40.7 | | | | 43.0 | | | | 45.9 | | | | -3.0 | % |
| External affairs | | | 7.0 | | | | 10.2 | | | | 11.8 | | | | 12.2 | | | | 12.7 | | | | 12.8 | | | | 13.5 | | | | 3.4 | % |
| Social development | | | 179.2 | | | | 198.0 | | | | 218.2 | | | | 234.6 | | | | 251.2 | | | | 269.0 | | | | 286.9 | | | | 6.9 | % |
| Social protection | | | 143.7 | | | | 153.0 | | | | 165.1 | | | | 179.1 | | | | 192.8 | | | | 207.3 | | | | 221.7 | | | | 7.4 | % |
| Social security funds | | | 35.5 | | | | 45.0 | | | | 53.1 | | | | 55.5 | | | | 58.4 | | | | 61.7 | | | | 65.2 | | | | 5.5 | % |
| Allocation by functional classification | | | 1 118.7 | | | | 1 235.4 | | | | 1 299.2 | | | | 1 403.3 | | | | 1 484.5 | | | | 1 594.0 | | | | 1 703.8 | | | | 6.7 | % |
| Contingency reserve | | | | | | | | | | | | | | | | | | | 3.0 | | | | 5.0 | | | | 8.0 | | | | | |
| Debt-service costs | | | 114.8 | | | | 128.8 | | | | 146.5 | | | | 163.3 | | | | 183.1 | | | | 203.3 | | | | 223.4 | | | | 11.0 | % |
| Consolidated expenditure | | | 1 233.5 | | | | 1 364.2 | | | | 1 445.7 | | | | 1 566.6 | | | | 1 670.6 | | | | 1 802.3 | | | | 1 935.1 | | | | 7.3 | % |
Consolidated Government Expenditure by functional & economic classification1, 2014/15-2020/21 (continued)
| | | | 2014/15 | | | | 2015/16 | | | | 2016/17 | | | | 2017/18 | | | | 2018/19 | | | | 2019/20 | | | | 2020/21 | | | Average annual growth 2017/18 – 2020/21 | |
R billion | | Outcome | | | Revised | | | Medium -term estimates | | | | |
| Economic classification | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current payments | | | 744.3 | | | | 805.0 | | | | 872.0 | | | | 939.6 | | | | 1014.4 | | | | 1097.9 | | | | 1180.8 | | | | 7.9 | % |
| Compensation of employees | | | 437.4 | | | | 473.1 | | | | 510.3 | | | | 549.3 | | | | 587.9 | | | | 629.9 | | | | 677.8 | | | | 7.3 | % |
| Goods and services | | | 185.5 | | | | 195.6 | | | | 208.1 | | | | 220.0 | | | | 236.4 | | | | 255.8 | | | | 270.2 | | | | 7.1 | % |
| Interest and rent on land | | | 121.4 | | | | 136.3 | | | | 153.6 | | | | 170.4 | | | | 190.0 | | | | 212.2 | | | | 232.7 | | | | 11.0 | % |
| of which Debt-service costs | | | 114.8 | | | | 128.8 | | | | 146.5 | | | | 163.3 | | | | 183.1 | | | | 203.3 | | | | 223.4 | | | | 11.0 | % |
| Transfers and subsidies | | | 398.1 | | | | 435.8 | | | | 472.9 | | | | 505.1 | | | | 543.1 | | | | 584.8 | | | | 627.1 | | | | 7.5 | % |
| of which Capital transfers | | | 59.7 | | | | 62.0 | | | | 67.6 | | | | 71.7 | | | | 77.4 | | | | 81.7 | | | | 0.0 | | | | | |
| Provinces and municipalities | | | 95.8 | | | | 107.9 | | | | 112.5 | | | | 120.7 | | | | 131.9 | | | | 143.3 | | | | 155.9 | | | | 8.9 | % |
| Departmental agencies and accounts | | | 24.2 | | | | 23.4 | | | | 25.2 | | | | 24.9 | | | | 26.2 | | | | 27.7 | | | | 30.9 | | | | 7.5 | % |
| Higher education institutions | | | 25.5 | | | | 29.0 | | | | 30.9 | | | | 38.1 | | | | 38.9 | | | | 41.0 | | | | 43.2 | | | | 4.3 | % |
| Foreign governments and international organizations | | | 1.9 | | | | 2.1 | | | | 2.2 | | | | 2.0 | | | | 2.1 | | | | 2.2 | | | | 2.3 | | | | 5.4 | % |
| Public corporations and private enterprises | | | 26.8 | | | | 28.8 | | | | 32.8 | | | | 31.4 | | | | 33.7 | | | | 36.2 | | | | 38.1 | | | | 6.8 | % |
| Non-profit institutions | | | 26.7 | | | | 28.4 | | | | 29.6 | | | | 31.9 | | | | 34.0 | | | | 36.2 | | | | 38.4 | | | | 6.4 | % |
| Households | | | 197.1 | | | | 216.3 | | | | 239.8 | | | | 256.2 | | | | 276.3 | | | | 298.2 | | | | 318.2 | | | | 7.5 | % |
| Payments for capital assets | | | 85.5 | | | | 93.1 | | | | 93.6 | | | | 102.4 | | | | 105.1 | | | | 109.3 | | | | 113.8 | | | | 3.6 | % |
| Buildings and other capital assets | | | 63.7 | | | | 76.1 | | | | 72.8 | | | | 79.5 | | | | 83.1 | | | | 86.7 | | | | 90.0 | | | | 4.2 | % |
| Machinery and equipment | | | 21.8 | | | | 17.0 | | | | 20.8 | | | | 22.9 | | | | 22.1 | | | | 22.6 | | | | 23.8 | | | | 1.3 | % |
| Payments for financial assets | | | 5.6 | | | | 30.3 | | | | 7.2 | | | | 19.5 | | | | 5.0 | | | | 5.2 | | | | 5.5 | | | | -34.4 | % |
| Allocation by economic classification | | | 1233.5 | | | | 1364.2 | | | | 1445.7 | | | | 1566.6 | | | | 1667.6 | | | | 1797.3 | | | | 1927.1 | | | | 7.1 | % |
| Contingency reserve | | | - | | | | - | | | | - | | | | - | | | | 3.00 | | | | 5.00 | | | | 8.00 | | | | | |
| Consolidated expenditure | | | 1233.5 | | | | 1364.2 | | | | 1445.7 | | | | 1566.6 | | | | 1670.6 | | | | 1802.3 | | | | 1935.1 | | | | 7.3 | % |
_________________
Note:
(1) Consisting of national, provincial, social security funds and public entities.
Source: National Treasury.
Taxation
Taxation in South Africa is administered by South African Revenue Service (SARS), an autonomous body managed by a board of directors and established by legislation to collect revenue and ensure compliance with tax law. SARS’ vision is to be an innovative revenue and customs agency that enhances economic growth and social development and supports South Africa’s integration into the global economy in a way that benefits all South African citizens. Among others, SARS collects personal income tax, company tax, value added tax, customs duties on imports, excise duties on prescribed goods, fuel levies and various other taxes.
While most tax revenues are collected at the national level, municipalities impose and collect property taxes. In addition, the main sources of revenue (although limited in scope) for provinces are motor vehicle license fees and gambling taxes. Non-tax user charges are levied principally by municipalities and extra-budgetary institutions, such as universities, museums, statutory research councils and public entities.
The National Government aims to maintain and strengthen a tax system that is fair, efficient and internationally competitive, while meeting fiscal policy requirements. Recognizing that improving tax administration and collection are essential steps towards achieving meaningful tax reform in the future, the National Government seeks to narrow the tax compliance gap and broaden the tax base. It is the National Government’s policy to keep tax law as simple as possible in order to minimize collection and compliance costs and to monitor the tax system on a continuous basis.
Personal Income Tax
South Africa has a progressive personal income tax system whereby income categories in different brackets are taxed at different rates. As of 2017 for individuals earning between R0 and R189,880, a tax rate of 18.0% is levied. This is the lowest tax bracket, with four other brackets being applied to higher income earners. The top bracket has a tax rate of 45.0%, and it applies to individuals earning more than R1.5 million The tax system also provides primary rebates for all taxpayers, as well as secondary rebates for people aged 65 years and older, and a tertiary rebate for people 75 years or older. In practice, it means that people earning less than R75,750 will not pay any tax, while those aged 65 years and older will not pay tax if they earn less than R117,300. For those older than 75 years, the tax threshold is R131,150.
The National Government has over the past ten years adjusted income tax brackets to take account of the effects of inflation on income tax paid by individuals.
Tax deductions on personal income tax include deductions for pension contributions, while tax credits are provided for individuals belonging to medical aids. In addition, interest income of up to R22,800 is tax exempt for individuals younger than 65 years and R33,000 for those 65 years and older.
Company Tax
Over the past few years, South Africa has reduced the headline corporate income tax rate from 40.0% in 1994 to 28.0% currently. The secondary tax on companies (STC) of 10.0% has been replaced by a 15.0% tax on dividends, withheld from the dividends distributed to the recipient and not paid by the company distributing the dividends. The dividends withholding rate was increased to 20.0% during Budget 2017.
Small business corporations (SBCs) with an annual turnover less than R20 million have certain special tax provisions. They are taxed on a graduated scale with the first R75,750 being tax free. There are also 7.0% and 21.0% brackets, with only earnings in excess of R550,000 taxed at 28.0%. In addition, SBCs may benefit from increased depreciation of assets. There is also a turnover tax option for businesses with an annual turnover of less than R1 million, in an attempt to minimize their compliance burden, while investors are encouraged to fund small businesses through a Venture Capital Company regime. Investments in VCCs are tax deductible, provided that the investments meet the necessary requirements. Since 2014, entities which provide grant funding to small businesses will not be taxed on their accruals and receipts, while grant funding in the hands of small businesses is also tax exempt, regardless of source.
Capital gains tax is levied on any capital gains realized by individuals and companies. Individuals are taxed at their marginal income tax rate, with a 40.0% inclusion rate. Primary residences have an exemption of R2 million. Companies are taxed at the corporate income tax rate of 28.0%, with an 80.0% inclusion rate.
South African tax legislation contains certain corporate reorganization rollover rules. These rules are intended to facilitate the tax free transfer of assets in specified circumstances. Taxpayers may not generally deduct interest incurred in respect of loan funding used to acquire shares because shares generally only produce exempt income. However, taxpayers can indirectly obtain a deduction for interest when acquiring shares of a target company when the acquisition is associated with certain rollover reorganization. The rollover rules were never intended to enable interest deductions when those deductions would not otherwise be available. A measure to control interest deductions in respect of debt used to procure, enable, facilitate or fund certain reorganization transactions has been introduced.
The concept of “headquarter company” was introduced with effect from January 1, 2011. Headquarter companies enjoy certain tax and exchange control relief and the concept is aimed at positioning South Africa as a holding company gateway for foreign multinationals into Africa.
In order to qualify as a headquarter company, certain requirements must be met, inter alia:
| · | a headquarter company must be a South African resident company; |
| · | each shareholder of the company (whether alone or together with any other company forming part of the same group of companies as the shareholder) holds 10.0% or more of the equity shares and voting rights in that company; |
| · | at least 80.0% or more of the cost of the total assets of the company is attributable to any interest in equity shares in, any amount loaned or advanced to, or any intellectual property as defined that is licensed by the headquarter company to, any foreign company in which the headquarter company held at least 10.0% of the equity shares and voting rights; and |
| · | where the gross income of the headquarter company exceeds R5 million, at least 50.0% or more of its gross income consists of rental, dividends, interest, royalty or service fees paid by a foreign company, and/or proceeds from the disposal of equity shares in a foreign company or of any intellectual property which had been licensed by the headquarter company to the foreign company. |
Distributions from collective investment schemes (CIS), follow the flow-through principle, meaning that the income (e.g. interest, dividends, etc.) received by the CIS in securities will retain its nature when distributed to the CIS unit holders. If the income is not distributed within 12 months it will be taxed at CIS level. Real estate investment trusts (REIT’s) have their own taxation regime, and although income is taxed at REIT level, the flow through principle applies for distributed income. Distributed income is tax deductible at REIT level, while REITs are not subject to capital gains tax on disposal of their real estate assets.
A withholding tax on interest took effect on January 1, 2015. As a result, all interest paid to non-residents is taxed at a final withholding tax rate of 15.0% and is payable within 14 days after the end of the month during which the interest is paid. However, the withholding charge is subject to some exemptions, including debt issued by government and debt listed on an exchange. The exemption of interest owed by domestic banks does not include back-to-back loan agreements designed to circumvent the 15.0% withholding tax (e.g., if the bank acts as an intermediary to facilitate the unlisted borrowing of funds by a domestic company from a foreign lender).
In addition to the exemption for mobile portfolio debt capital, cross-border interest withholding contains three additional exemptions which apply to: (a) trade finance; (b) certain foreign payers and foreign payees; and (c) certain forms of debt owed by a headquarter company. South African double tax agreements with low tax jurisdictions that provide for a zero withholding rate will be renegotiated.
In addition to withholding taxes on interest and dividends, offshore royalty payments are also subject to a 15.0% withholding tax. All withholding taxes are subject to double tax treaty provisions. South Africa has an extensive double tax treaty network with over 70 countries.
International transactions are subject to rules dealing with transfer pricing and controlled foreign companies. As a G20 country member, South Africa is part of the Base Erosion Profit Shifting (BEPS) project conducted by the Organization of Economic Cooperation and Development (OECD). Following the conclusion of the first part of the project, South Africa is in the process of aligning its relevant processes and legislation to OECD proposals. This includes subscribing to the country by country (CbC) reporting arrangement, whereby participating countries will be compelled to collect and share information on multinationals operating in their countries.
As of January 1, 2011, a controlled foreign company includes a foreign company where more than 50.0% of the total participation rights in that foreign company is not only directly held, but also indirectly held by one or more persons that are South African residents other than persons that are headquarter companies. If one or more South African residents hold more than 50.0% of the participation rights in an offshore cell, the cell will be deemed to be a controlled foreign company without regard to ownership in the other cells. As of April 1, 2012, the ownership threshold in respect of the dividend and capital gain participation exemptions in relation to foreign shares was reduced from 20.0% down to 10.0%. This lower threshold is consistent with the global economic concept of direct foreign investment and that of the South African exchange control requirements.
Effective April 1, 2012, transfer pricing rules were modernized to be in line with the OECD guidelines. The amendment will shift the focus from goods and services to a broader category of “cross-border transactions, operations, schemes, agreements or understandings” that have been effected between, or undertaken for the benefit of connected persons. The new transfer pricing rules are closely aligned with the wording of the OECD and UN Model Tax Conventions and are in line with tax treaties and other international tax principles.
In relation to the thin-capitalization provisions, the new amendments effectively took away the Commissioner’s discretion to determine whether or not financial assistance provided to a South African resident by a non-resident who is connected to the resident, is excessive in relation to the fixed capital of the recipient of the financial assistance. The taxpayer will now be obliged to ensure that all its transactions are done on an arm’s length basis.
Further, the thin capitalization rules have now been merged directly into the transfer pricing rules. The transfer pricing rules will henceforth be used to deny deductions for interest that would not have existed had a South African entity not been thinly capitalized with excessive debt.
A new uniform system of source rules was introduced on January 1, 2012. The new uniform system combines the common law, pre-existing rules and tax treaty principles. These source rules will loosely reflect implicit tax treaty principles, with a few added built-in protections, so that the South African system is globally aligned. The new source rules eliminate the concept of deemed source. South African sources of income are now fully defined and items of income falling outside these definitions will be treated as foreign source income, unless a particular category of income is not expressly defined, in which case the common rules will continue to apply.
Investors in equity funds constituted as partnerships or trusts will be granted tax relief and will be regarded as having a permanent establishment in South Africa merely by virtue of their investment. This tax relief places limited partners of trust beneficiaries in the same position had these investors invested directly in the underlying assets of the partnership or trust. The investors will not be exposed to South African tax merely because of the portfolio management activities carried on in South Africa. However, management fees of the South African manager, general partner or trustee will remain taxable in South Africa. To qualify for this relief the investor must satisfy the following requirements: (a) the partner or trust beneficiary must have limited liability like a shareholder of a company; (b) the partner or trust beneficiary must not participate in the effective management of the business of the partnership or trust; (c) the partner or the trust beneficiary must not have the authority to act on behalf of the partnership or trust or on behalf of the members of the partnership or trust; and (d) the partner or trust beneficiary must not render any services to or on behalf of the partnership or trust.
A new definition of a “foreign partnership” was introduced into the Income Tax Act for tax years commencing after October 1, 2010. The purpose of the new definition is to ensure that entities like limited liability partnerships or limited liability companies and similar hybrid entities are not treated as companies when they are in fact partnerships. The new definition therefore synchronizes the South African tax treatment of these entities with foreign tax practice. To qualify as a foreign partnership, an entity must be a partnership, association or body of persons established or formed under foreign law.
South Africa has introduced specific provisions in the various tax acts (Income tax Act, Value Added Tax and Securities Transfer Tax) to cater for Islamic finance. In 2014, the legislation was amended to also allow SOEs to issue a Sukuk, following the successful issue of a Sukuk by the South African government. The changes were introduced to place the above mentioned products on an equal footing with conventional finance products.
In an effort to encourage conservation of South Africa’s rich biodiversity, the Income Tax Act contains tax incentives (introduced in the 2008–2009 Budget) for private landowners that have entered into bilateral agreements to conserve and maintain a particular area of land on behalf of the National Government under the terms of the National Environmental Management: the Biodiversity Act of 2004 and: National Environmental Management: the Protected Areas Act of 2003. Landowners are eligible for income tax deductions for environmental maintenance and rehabilitation expenses as well as the loss of the right to use land associated with biodiversity conservation and management under the terms of these agreements. Furthermore, the mineral and petroleum royalty regime came into effect in two phases: Section 1 of the Royalty Act came into effect on November 1, 2009, and the rest of the Royalty Act came into effect on March 1, 2010. Variable royalty rates will apply according to two separate formulae for refined and unrefined minerals. The tax base is gross sales less certain expenses.
South Africa levies a securities transfer tax (STT) on the transfer of both listed and unlisted shares at a rate of 0.25%. There are exemptions for securities backed lending transactions, and the STT only applies to equity securities.
Depreciation allowances, including the increased depreciation relief for urban development zones, are available to taxpayers that invest in (by erecting or refurbishing) any commercial or residential building within specified urban development zones. The allowance is deductible in the year the erected building or the refurbished part of the building is brought into use by the taxpayer for purposes of trade, and this depreciation relief will benefit owners, users or lessors of such buildings.
The amount of the allowance is dependent on whether the taxpayer erects a new commercial or residential building or refurbishes an existing commercial or residential building. Taxpayers that erect a new commercial or residential building within a specified urban development zone will be allowed an 11-year write-off period. In addition, 20.0% of the cost to the taxpayer of the erection or extension of or addition to that building, which is deductible in the year of assessment during which that building is brought into use by that taxpayer solely for the purposes of that taxpayer’s trade and 8.0% of that cost in each of the ten succeeding years of assessment. Depreciation relief has also been afforded to environmental production and post-production assets.
Both sets of assets must be ancillary to the manufacturing process, of a permanent nature and utilized to fulfill environmental obligations. Environmental production assets are eligible for a 40:20:20:20 rate of depreciation, while the rate of relief for environmental post-production assets (e.g. dams or disposal facilities) is 5.0% per annum (i.e., a 20-year straight-line write-off period).
Consolidated Government Revenue
Revenue Outcomes and revised estimates
Gross tax revenue collections for 2016/17 amounted to R1.14 trillion, lower by R0.3 billion than the 2017 Budget estimate. In 2016/17, the largest shortfall against the 2017 Budget estimate was in customs duties (-R1.9bn), which slowed in tandem with falling import growth. Personal income tax (-R1.3bn), value-added tax (VAT)(-R0.8bn) and corporate income tax (-R0.7bn) also performed below projections. These shortfalls were offset by higher-than-projected dividend withholding taxes amounting to R5.4 billion. This windfall may have resulted from artificial declarations of dividend payments before the effective date to avoid the higher tax rate introduced in the 2017 Budget.
The lower outcomes in 2016/17 explain part of the shortfall in the current year. However, revenue growth has remained weak, even as the economy emerged from recession in the second quarter of 2017. For the first six months of 2017/18, gross tax revenue grew by 5.9% year-on-year against a target of 10.7%. All tax instruments are performing poorly, with large shortfalls for personal and corporate income tax, and dividend withholding tax. The National Treasury projects a tax revenue shortfall of R50.8 billion in 2017/18 compared with the 2017 Budget estimate.
Revenue weakness reflects a number of economic factors:
| · | Growth in key sectors that have supported buoyant revenue collection – such as finance, retail and telecommunications – has slowed. |
| · | Personal income tax collection has been affected by low bonus payments, moderate wage settlements, job losses and a slower expansion of public-sector employment. |
| · | Corporate income tax under-collections in the first half of 2017/18 resulted from persistently weak growth and commodity price volatility. |
| · | Weak investment and household consumption led to a sharp contraction in imports in 2016, affecting VAT and customs duties. |
| · | The stabilization of the Rand has lessened the impact of import taxes and revenue on profits in traded sectors, such as mining. |
| Table 3.1 Gross tax revenue |
| | 2016/17 | | 2017/18 |
| R billion | Budget1 | Outcome | Deviations | | Budget1 | Revised | Deviations |
| Persons and individuals | 425.8 | 424.5 | -1.3 | | 482.1 | 461.3 | -20.8 |
| Companies | 205.1 | 204.4 | -0.7 | | 218.7 | 213.9 | -4.8 |
| Value-added tax | 290.0 | 289.2 | -0.8 | | 312.8 | 301.3 | -11.4 |
Dividend withholding tax2 | 25.7 | 31.1 | 5.4 | | 34.2 | 31.6 | -2.6 |
| Specific excise duties | 35.7 | 35.8 | 0.1 | | 39.9 | 37.4 | -2.5 |
| Fuel levy | 63.0 | 62.8 | -0.2 | | 70.9 | 70.1 | -0.8 |
| Customs duties | 47.5 | 45.6 | -1.9 | | 52.6 | 47.2 | -5.4 |
| Ad-valorem excise duties | 3.4 | 3.4 | 0.0 | | 3.6 | 3.6 | -0.0 |
| Other | 48.2 | 47.3 | -0.9 | | 50.7 | 48.4 | -2.3 |
| Gross tax revenue | 1 144.4 | 1 144.1 | -0.3 | | 1 265.5 | 1 214.7 | -50.8 |
| 1. 2017 Budget figures |
| 2. Includes secondary tax on companies |
| Source: National Treasury |
Policy and administrative factors may also be contributing to the shortfall. Behavioral responses to tax increases may be stronger than anticipated and revenue could perform below expectations even if taxes are hiked. Compliance concerns are mounting in the context of tax administration challenges and weakening tax morality. Implementing the recommendations from the Tax Ombud’s report on delays in the payment of VAT refunds by the South African Revenue Service will help to improve taxpayer confidence in revenue administration.
The 2016/17 revenue outcomes, the recent recession and the changing composition of economic growth underline the need for caution when estimating revenue growth in the period ahead. Compared with the 2017 Budget, nominal GDP growth forecasts have been revised down by about 1.5 percentage points per year between 2017/18 and 2019/20. Forecasts for nominal growth in gross tax revenue have been revised down by an annual average of 2.2% over the same period.
Financing
The following table sets forth the financing of the net borrowing requirement of the National Government for the six fiscal years ended March 31, 2017 and estimated amounts for the fiscal year ending March 31, 2018.
Financing of the Net Borrowing Requirement of the National Government
| | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | Revised estimate 2018(3) | |
| Borrowing | | | | | | | | | | | | | | | | | | |
| Revenue | | | 800,142.3 | | | | 887,265.1 | | | | 965,456.8 | | | | 1,075,211.0 | | | | 1,135,506.60 | | | | 1,193,457.00 | |
| Expenditure | | | 965,495.6 | | | | 1,047,758.6 | | | | 1,132,037.2 | | | | 1,244,626.0 | | | | 1,303,749.30 | | | | 1,413,101.00 | |
Main Budget balance(1) | | | (165,353.3 | ) | | | (160,493.5 | ) | | | (166,580.4 | ) | | | (169,415.0 | ) | | | (168,242.70 | ) | | | (219,644.00 | ) |
| % of GDP | | | (5.0 | )% | | | (4.4 | )% | | | (4.3 | %) | | | (4.1 | %) | | | (3.82 | %) | | | (4.70 | %) |
| Financing | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic short-term loans (net) | | | 22,555.0 | | | | 23,048.0 | | | | 9,569.0 | | | | 13,075.0 | | | | 40,507.00 | | | | 33,000.00 | |
| Domestic long-term loans (net) | | | 125,767.8 | | | | 149,414.1 | | | | 157,014.0 | | | | 146,172.0 | | | | 116,684.30 | | | | 175,093.00 | |
| Market loans | | | 161,557.7 | | | | 172,112.2 | | | | 192,414.0 | | | | 176,795.0 | | | | 175,070.40 | | | | 200,700.00 | |
| Loans issues for switches | | | (3,851.8 | ) | | | (1,135.3 | ) | | | (1,160.0 | ) | | | (2,479.0 | ) | | | (1,036.40 | ) | | | (1,030.00 | ) |
| Redemptions | | | (31,938.1 | ) | | | (21,562.8 | ) | | | (34,240.0 | ) | | | (28,144.0 | ) | | | (57,349.70 | ) | | | (24,577.00 | ) |
| Foreign loans (net) | | | (11,622.0 | ) | | | 377.8 | | | | 8,361.0 | | | | (3,879.0 | ) | | | 36,380.70 | | | | 29,807.00 | |
| Market loans | | | — | | | | 19,619.1 | | | | 22,952.0 | | | __ | | | | 1,111.30 | | | | | |
| Loans issues for switches | | __ | | | __ | | | __ | | | __ | | | __ | | | __ | |
| Arms procurement loan agreements | | | 60.6 | | | | — | | | | — | | | __ | | | __ | | | __ | |
| Redemptions (including revaluation of loans) | | | (11,682.6 | ) | | | (19,241.3 | ) | | | (14,591.0 | ) | | | (3,879.0 | ) | | | (15,689.90 | ) | | | (4,088.00 | ) |
Change in cash and other balances(2) | | | 28,652.5 | | | | (12,346.4 | ) | | | (8,363.6 | ) | | | 14,047.0 | | | | (25,329.30 | ) | | | (18,256.00 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 165,353.3 | | | | 160,493.5 | | | | 166,580.4 | | | | 169,415.0 | | | | 168,242.70 | | | | 219,644.00 | |
_________________
Notes:
(1) A negative number reflects a deficit and a positive number a surplus.
(2) A positive change indicates a reduction in cash balances.
(3) Numbers as published during the October 2017 MTBPS.
Source: National Treasury.
In addition to transfers received from the National Budget and their own provinces’ revenue collections, Provincial Budgets are financed by means of opening balances and concessionary and non-concessionary funding such as loans by the DBSA. The deficit of the National Budget is financed mainly by domestic and foreign loans. The provinces are barred constitutionally from raising loans for current expenditure. Loans for bridging finance may be advanced, however, provided that the provinces redeem such loans within 12 months following the date on which they are obtained, and any special conditions be specified in an act of Parliament which is required to be recommended by the Financial and Fiscal Commission. In addition, the National Government may not guarantee any provincial or local government loans, unless the guarantee complies with the norms and conditions for such guarantee as set out in an act of Parliament. See “Public Finance—Background.”
Public Enterprises
The National Government owns a number of public enterprises (otherwise known as state-owned entities). The ministers under whose departments these enterprises fall act as the “Executive Authority” over these entities, taking up the role of shareholder on behalf of government. The ministers that act as the Executive Authority include the Minister of Public Enterprises, the Minister of Communications, the Minister of Energy, the Minister of Transport and various other ministers of the National Government.
The Executive Authority oversees the operations of the public enterprise, including the appointment of board members, the entering into of shareholder compacts with the public enterprise, approving major transactions, and the monitoring of performance. The National Treasury is responsible for financial oversight over all the public enterprises, including the review of major transactions, funding requests and applications for guarantees.
Parliament plays a significant role in the oversight of public enterprises through a number of committees that have been assigned responsibility for oversight over public enterprises. These committees include the Parliamentary Portfolio Committee on Public Enterprises, which is responsible for oversight over the Department of Public Enterprises and the key public enterprises that report to the department, the Parliamentary Portfolio Committees responsible for oversight of the various sectors in which public enterprises operate, and the Select Committee on Public Accounts, which is responsible for financial oversight.
The infrastructure investment program/programs of the public enterprises are aimed at delivering infrastructure to enhance economic growth and alleviate poverty. Public enterprises are expected to invest R405.5 billion in capital expenditure between 2016/17 and 2018/19. The main public enterprises responsible for delivering this growth are the electricity utility, Eskom, the freight transportation company, Transnet, the national oil company, the Petroleum, Oil and Gas Corporation of South Africa (Pty) Limited (PetroSA), which is a subsidiary of the Central Energy Fund, and the South African National Roads Agency Limited (SANRAL).
The National Government has issued formal contractual guarantees in respect of certain indebtedness of the public enterprises, inter alia, to support the capital investment program/programs of the public enterprises. Such guarantees are issued in accordance with the Public Finance Management Act (PFMA). All guarantees are issued jointly by the Minister of Finance and Executive Authority for the relevant public enterprise in terms of the PFMA. The National Government’s aim is for public enterprises to borrow on the strength of their own balance sheets without explicit recourse from the National Government. However, if a clear need for shareholder support is identified, a guarantee for a public enterprise may be provided on application. In such applications, the public enterprise is required to provide a sound business case, ensuring long-term financial sustainability. In extending guarantees, the National Government remains mindful of the guideline of 60.0% of GDP that has been set for total debt, provisions and contingent liabilities.
Over and above Eskom, Transnet and SANRAL, who have guarantees from the National Government, the current status of some of the more significant public enterprises over the last four fiscal years is set out below.
Guarantees of Public Enterprises
| | | 2012/13 | | | 2013/14 | | | 2014/15 | | | 2015/16 | |
| | | Total guarantee amount | | | Total exposure amount | | | Total guarantee amount | | | Total exposure amount | | | Total guarantee amount | | | Total exposure amount | | | Total guarantee amount | | | Total exposure amount | |
| Rand (million) | |
| Eskom | | | 350,000 | | | | 103,523 | | | | 350,000 | | | | 125,125 | | | | 350,000 | | | | 149,944 | | | | 350,000 | | | | 174,586 | |
| SANRAL | | | 38,687 | | | | 19,482 | | | | 38,957 | | | | 23,866 | | | | 38,947 | | | | 32,436 | | | | 38,947 | | | | 35,358 | |
| TCTA | | | 25,530 | | | | 20,460 | | | | 25,669 | | | | 20,516 | | | | 25,590 | | | | 20,807 | | | | 25,755 | | | | 21,173 | |
| DBSA | | | 28,589 | | | | 25,621 | | | | 29,631 | | | | 25,747 | | | | 12,857 | | | | 4,135 | | | | 13,892 | | | | 4,355 | |
| IDC | | | 2,146 | | | | 575 | | | | 1,820 | | | | 504 | | | | 1,620 | | | | 344 | | | | 1,988 | | | | 243 | |
| Land Bank | | | 1,893 | | | | 893 | | | | 3,500 | | | | 1,097 | | | | 6,600 | | | | 2,098 | | | | 6,600 | | | | 5,304 | |
| Denel | | | 1,850 | | | | 1,850 | | | | 1,850 | | | | 1,850 | | | | 1,850 | | | | 1,850 | | | | 1,850 | | | | 1,850 | |
| PRASA | | | 1,400 | | | | 133 | | | | 1,220 | | | | 92 | | | | 1,217 | | | | 48 | | | | 1,400 | | | | 2 | |
| SAA | | | 7,906 | | | | 2,238 | | | | 7,901 | | | | 5,010 | | | | 14,394 | | | | 8,419 | | | | 14,394 | | | | 14,394 | |
| Transnet | | | 3,500 | | | | 3,757 | | | | 3,500 | | | | 3,757 | | | | 3,500 | | | | 3,757 | | | | 3,500 | | | | 3,757 | |
| SABC | | | 1,000 | | | | 167 | | | | 1,000 | | | | — | | | | — | | | | — | | | | | | | | | |
| SA Express | | | — | | | | — | | | | 539 | | | | 539 | | | | 1,106 | | | | 539 | | | | 1,106 | | | | 539 | |
| SAPO | | | — | | | | — | | | | — | | | | — | | | | 1,940 | | | | 270 | | | | 4,440 | | | | 1,270 | |
| SARB | | | — | | | | — | | | | — | | | | — | | | | 7,000 | | | | — | | | | 3,000 | | | | | |
| Telkom | | | 284 | | | | 90 | | | | 356 | | | | 110 | | | | 227 | | | | 100 | | | | 290 | | | | 128 | |
| Other Entities | | | 4,219 | | | | 1,449 | | | | 2,535 | | | | 1,355 | | | | 2,560 | | | | 1,147 | | | | 2,755 | | | | 1,022 | |
| Total | | | 467,004 | | | | 180,239 | | | | 468,478 | | | | 209,568 | | | | 469,408 | | | | 225,894 | | | | 469,917 | | | | 263,981 | |
Source: National Treasury.
Eskom Limited (Eskom)
Eskom is a state-owned company responsible for electricity generation, transmission and distribution in South Africa. Eskom generates approximately 90.0% of electricity used in South Africa and approximately 40.0% of the electricity is used in Africa. Eskom directly provides electricity to about 45.0% of all end‑users in South Africa. The other 55.0% is resold by redistributors (including municipalities).
While most of Eskom’s business is within South Africa, the company also buys and sells electricity in the SADC region. Eskom’s involvement in African markets beyond South Africa is currently limited to projects that have a direct impact on securing supply of electricity for South Africa. Eskom is investigating additional opportunities in the SADC region.
Eskom’s capital expenditure (capex) program is well underway. Eskom has committed to a capital expansion program of R370 billion for the five-year period to 2021/22 and has consistently spent over R50 billion per annum on capex in the past three years. Key achievements of the program include commercialization of all four units of Ingula during the year, with a nominal capacity of 331MW each, supplementing the capacity added by Unit 6 of Medupi Power Station, commissioned in 2015/16 financial year.
In line with the National Energy Regulator of South Africa (NERSA’s) allowed price increase of 8.0% per annum over the third multi-year price determination (MYPD3) period, which was lower than the 16.0% that Eskom had applied for, Eskom had to reduce and reprioritize expenditure in some areas. Eskom has introduced the Business Productivity Programme (BPP), which aims to deliver cost savings of R61.9 billion in operating and capital costs, as well as working capital, over the MYPD3 period. For the year ended March 31, 2017, BPP savings of R20.2 billion (March 2016: R17.5 billion) were achieved against a target of R17 billion; inception-to-date savings amount to R48.7 billion against a target of R43 billion.
The Board approved an updated borrowing program of R337 billion, covering the period April 1, 2017 to March 31, 2022. Funding raised during the year ended March 31, 2017 amounted to R57.4 billion (2014/15: R53.5 billion). Over the MYPD3 period, Eskom will continue to be reliant on government support through the R350 billion guarantee facility that the Government has made available, of which Eskom had committed R254 billion in Government guarantees, with a further R84 billion awaiting approval or having been earmarked for funding under negotiation as at March 31, 2017.
Group revenue for the year increased by 8.0% to R177 billion (2015/16: R164.2 billion), reflecting the impact of the 9.4% tariff increase partially offset by lost sales volumes due to depressed macroeconomic conditions and customers becoming more energy efficient and also moving to other energy alternatives. Primary energy costs declined by 2.3% on prior year to R82.8 billion, mainly due to reduced reliance on Open-Cycle Gas Turbines (OCGTs) given the improved plant availability, additional new generation capacity and reduced coal costs. The contribution of IPP costs to total primary energy costs increased to 23.9%, from 17.8% in 2015/16, however IPPs currently only comprise 5.0% of electricity production (2015/16: 4.0%). It is positive to see that the cost per kW of electricity per IPP contracted to supply electricity to the grid has declined with each round of contracts signed. Earnings before interest, tax, depreciation & amortisation (EBITDA) improved to R38 billion, however group net profit fell by 83.0% on prior year to R0.9 billion (2016: R5.2 billion). This was due to the significant increase in financing costs and depreciation as plants are brought into commercial operation. Cash and cash equivalents plus investment in securities, was R32.5 billion (2016: R38.7 billion) as at March 31, 2017.
Following a Constitutional Court judgement in favor of Eskom and NERSA, Eskom is now awaiting NERSA’s decision on the adjudication and implementation of all the submitted Regulatory Clearing Account (RCA) applications for 2014/15, 2015/16 and 2016/17.
In addition, Eskom has submitted a revenue application for 2018/19, which equates to a standard tariff price increase of 19.9%. NERSA has undertaken public consultations between October 30 to November 17, 2017 and has announced a tariff increase of 5.23% on 15 December 2017. Subsequent to this decision, NERSA also announced that Eskom’s RCA applications will be considered following a due regulatory process.
Eskom is regaining control of its electricity system after years of facing generation challenges and trials of unplanned maintenance and breakdowns. The sustained improvement of the reserve margin contributed to no load shedding during the year to March 31, 2017. Due to decline in local demand and increased capacity arising from new generation plants, Eskom is currently experiencing surplus capacity. Therefore, Eskom is evaluating the available options to manage surplus capacity, including putting stations in cold reserve or decommissioning them. .
As at March 31, 2017, a total of 60 Independent Power Producers (IPP) projects were connected to the grid. However, no Power Purchase Agreements (PPAs) for Bid windows 3.5 to 4.5 have been signed since September 2016 due to the concerns raised by Eskom regarding the pace at which the Renewable Energy program has been rolled out. A task team comprising of Government Departments and Eskom officials was established to with the aim of resolving and agree on a proposed way forward.
On August 30, 2017, the Ministers of Energy (MoE) and Public Enterprises (collective known as responsible Ministers) convened a meeting which was also attended by representatives from the National Treasury, Eskom and the IPP Office to discuss this impasse and agreed on a solution. The agreement reached was that Eskom would sign the outstanding PPAs pertaining to Bid Windows 3.5, and 4 under the REIPPPP. In addition, they agreed that a post-implementation review of the REIPPPP should be undertaken to determine whether the programme has achieved its envisaged targets in order to inform the future rollout of the REIPPPP.
Subsequently on September 1, 2017, the former MoE in her capacity as procurer of the IPP programme announced that:
| · | The PPAs for Bid Windows 3.5 and 4 will be signed by end October 2017; |
| · | The DoE, through the IPP-Office, is to engage with all affected parties to renegotiate the tariff to a price not higher than 77c/kWh; |
| · | Eskom must ensure all contracts are in place for signing on October 28, 2017; |
| · | All future programmes are to be put on hold until a proper review is done and to allow the Integrated Energy Plan (IEP) and Integrated Resource Plan (IRP) to be concluded that will give an indication of the capacity needed. |
Although the PPAs were not signed on the announced date, the MoE has announced that the department is still committed to signing the PPAs.
For the financial year ended March 31, 2017, Eskom received a qualified audit opinion for its failure to comply with the Public Finance Management Act (PFMA) requirements as reported by their external auditors, SizweNtsalubaGobodo on the June 23, 2017. The auditors reported that the entity failed to exercise adequate oversight responsibility regarding compliance with the PFMA which resulted in instances of irregular expenditure amounting to R2.9 billion.
The qualified audit opinion arises as a result of the auditors being unable to conclude that the irregular expenditure as disclosed in the note 52 of the annual financial statements includes all the irregular expenditure that was incurred by the company for the 2016/17 financial year.
The Eskom Board has approved a mitigating plan that addresses all the issues raised by the external auditors and DBSA. National Treasury, the Department of Public Enterprises are working closely with Eskom to monitor the implementation of this plan in order to avoid a further audit qualification at year end.
Transnet SOC Limited (Transnet)
Transnet is a public company, wholly-owned by the South African Government, and is the custodian of rail, ports and pipelines infrastructure in South Africa. Transnet is responsible for enabling the competitiveness, growth and development of the South African economy through delivering reliable freight transport and handling services. Transnet has five operating divisions:
| · | Freight Rail, the largest of the five operating divisions, operates 30,400 kilometers of rail network across South Africa which transports bulk, break-bulk and containerized freight. The rail network and rail services provides strategic links between the mines, production hubs, distribution centers and ports, and connects with the cross-border railways of the region. |
| · | Transnet Engineering provides refurbishment, maintenance, upgrades and manufacturing services of rolling stock and specialized equipment for the other operating divisions of Transnet as well as external clients. It also houses the company’s research and development unit to capture opportunities for technology innovation. |
| · | Transnet National Ports Authority provides port infrastructure and marine services at the eight commercial seaports in South Africa. The division’s core functions include the planning, provision, maintenance and improvement of port infrastructure. |
| · | Transnet Port Terminals provides cargo-handling services at the ports which is critical in supporting the South African Government’s export-led growth strategy. |
In addition, Transnet has operations in Lesotho, Namibia, Swaziland and Mozambique and it plans to expand further into the rest of Africa. The tariffs charged by the National Ports Authority and Pipelines are determined by independent regulators, namely the Port Regulator and the National Energy Regulator of South Africa.
Transnet adopted the Market Demand Strategy (MDS) in 2012 which is currently in its sixth year of implementation. The strategy is aimed at creating capacity ahead of demand with the capital investment program. The capital investment plan was initially estimated to be R300 billion over the initial seven-year period. However, with the MDS now in its sixth year this has been revised to R229.4 billion over the next seven years due to the slowdown in economic activity. The program is expected to reduce the cost of doing business in South Africa and facilitate the switch from road transport to rail in order to reduce carbon emissions. The infrastructure upgrades and expansion will improve efficiency and address the current capacity constraints. The majority of the capital expenditure will be dedicated to the rail sector. Transnet’s focus in the rail sector is to increase rail market share by stabilizing and optimizing existing flows and targeting the migration of rail-friendly commodities from road to rail.
Transnet’s revenue for the 2016/17 financial year increased by 5.63% to R65.5 billion (2015/16: R62.2 billion), this is mainly attributable to a recovery in Transnet Freight Rail revenue, the group’s largest division. The division experienced a widespread increase in volumes transported, benefit from improving conditions in the mining sector, where the majority of the division’s clients are based. In addition, the Port Terminal and Pipelines divisions contributed to the growth by bulk and break bulk and container volumes and a 23.0% increase in allowable revenue granted by the National Energy Regulator of South Africa.
In the period under review, Freight Rail contributed 53.0% of the revenue generated by the group and Transnet Port Terminal contributed 15.0%. Pipelines contributed the least to revenue, accounting for only 6.0% of Transnet’s revenue.
Operating costs increased by 5.6% to R37,9 billion (2015/16: R35.9 billion), management implemented numerous cost-reduction initiatives throughout the Group to assist contain cost increases.
Consequently, earnings before interest, taxation, depreciation, impairment and amortization (EBITDA) increased by 5.0% to R27.6 billion (2015/16: R26.3 billion), resulting in the EBITDA margin remain flat at 42.1% in 2016 (2015/16: 42.2%).
A significant component of the investment plan is geared towards infrastructure, sustainability and capacity creation to support Transnet’s strategic objectives
In 2016/17 Transnet spend R21.4 billion in 2016/17. Progress in key investment programs included.
| · | Locomotives – R6 billion has been spend on the acquisition of locomotives. 197 locomotives have been accepted into operation, these of the 1064 locomotives Transnet plans to acquire for the General freight rail business; |
| · | Capitalized maintenance – R6.2 billion was used to maintain the company’s rail infrastructure (R2 billion) and rolling stock (R4.2 billion); and |
| · | New Multi-Product Pipeline – in 2016/17, R1.5 billion was invested in this project. Transnet aims to increase from 4.4 billion liters per annum to 8.7 billion liters per annum by 2023/24. |
Transnet’s borrowings decreased to R124.8 billion in 2016/17, which was a decrease of R9.7 billion from 2015/16 borrowings. Transnet’s borrowings comprised of a mix of short and long term domestic funding sources as well as foreign sources. Domestic funding sources were mainly commercial paper, bank loans and domestic bonds. Foreign funding sources included Development Finance Institutions and Export Credit Agencies. The majority of the funds were used for the operational capital expenditure program and the Market Demand Strategy (MDS) of which R21.4 billion was invested in capital expenditure under the MDS during the 2016/17 financial year.
PetroSA
PetroSA is a wholly-owned subsidiary of the Central Energy Fund (CEF), which in turn is wholly-owned by the State. The Department of Energy acts as PetroSA’s executive authority. PetroSA was formed in 2002 upon the merger of Soekor E and P (Pty) Limited, Mossgas (Pty) Limited and parts of the Strategic Fuel Fund. PetroSA plays a role in the development of the energy sector in South Africa in support of the broader CEF mandate of ensuring security of energy supply.
PetroSA’s core activities include:
| · | Exploration and production of oil and natural gas; |
| · | Participation in and acquisition of local as well as international upstream petroleum ventures; |
| · | Production of synthetic fuels from offshore gas at the Gas-To-Liquids (GTL) refinery in Mossel Bay; |
| · | Development of domestic refining and liquid fuels logistical infrastructure; and |
| · | Marketing and trade of oil petrochemicals. |
Moreover, PetroSA operates the FA-EM, South Coast gas fields as well as the Oribi and Oryx oil fields. The producing gas fields provide feedstock to the Mossel Bay GTL refinery. PetroSA is also exploring alternative feedstock supply given the depletion of its gas reserves in the FA-EM field. Outside South Africa, the company has exploration acreage in Equatorial Guinea and Namibia. PetroSA’s GTL refinery produces ultra‑clean, low-sulphur, low-aromatic synthetic fuels and high-value products converted from natural methane‑rich gas and condensate using a unique GTL Fischer Tröpsch technology. Key commodities produced include unleaded petrol, kerosene (paraffin), diesel, propane, liquid oxygen and nitrogen, distillates, eco-fuels and alcohols. Its world-class synthetic fuels and petrochemicals are marketed internationally.
PetroSA operates the following main divisions:
| · | Products and Sales: The Trade, Supply and Logistics (TS&L) division is responsible for marketing and selling products and services to customers in South Africa and abroad. |
| · | Petrochemicals: PetroSA produces several chemicals at its GTL plant in Mossel Bay. These synthetic chemicals fall into two main groups: alcohols and low-aromatic distillates. These products are placed locally and internationally. |
| · | Crude Oil: PetroSA produces crude from its Oribi and Oryx oil fields, located in Block 9, off the coast of SA. It is estimated that the fields produce 1,800 barrels of oil per day. |
| · | Commercial Business: In 2006, PetroSA established its Commercial Business in order to facilitate opportunities for players within the petroleum industry from a previously disadvantaged background. Initially, the unit focused on black economic empowerment wholesalers and later expanded its focus to include liquid petroleum gas (LPG). |
The CEF group has been faced with sustainability pressures since 2013/2014 financial year mainly as a result of the feedstock shortages (gas feedstock) which is extremely necessary in the sustainable operation of its gas to liquid (GTL) refinery. CEF has responded to the sustainability challenges facing the GTL refinery’s by its decision to convert the GTL refinery into a crude oil processing facility.
In addition, CEF is mitigating against the Group’s worsening financial position through implementation of a number of cost reduction strategies including adoption of a consolidated shared service model and divesture from non-performing projects. CEF has in the 2016/2017 financial period closed dormant subsidiaries (subsidiaries were predominantly intended to house foreign investment of PetroSA).
The CEF Group recorded a 44.0% decline in revenues from R20.7 billion in 2016 to R11.6 billion in 2017. This was mainly due to the decline in the sale of petroleum products, production interruptions at the Ghana Jubilee plant as well as the impact of the once-off sale of strategic fuel stock recorded in the prior year. Group performance was unfavorably affected by changes in the operating model for the refinery, which was necessitated by the declining gas reserves. The new model has partially converted a gas to liquid refinery into condensate processing refinery, resulting in the use of more expensive imported feedstock when compared to the cost of the indigenous gas. The new operating model requires the refinery to operate at its maximum operating capacity in order for the operations to generate adequate margins. Net losses of R599 million were recorded for the year. Cash and cash equivalents for the year were maintained at R15.7 billion; reserves however include restricted cash generated from the sale of strategic stock which may have to be utilized in replacing the stock.
Capex investments significantly declined on prior year to R856 million (2016: R2.3 billion). The lower investment rate is due to the delays in the procurement of the renewable energy projects and the deferral of risky exploration projects while the entity puts in place a longer-term turnaround strategy.
For the 2016/17 financial year the group did not undertake any long-term domestic borrowings and has no immediate plans to borrow in the domestic capital market during the year. PetroSA applied for the renewal of the foreign borrowing limit of US$250 million on April 11, 2017 and received approval from the Minister of Finance on May 14, 2017 for R3 billion, which is the Rand equivalent of USD200 million converted at USD/ZAR1 =15. The additional funding of R750 million was required by the Trade, Supply and Logistics (TS&L) unit of PetroSA and will be utilized for its trading activities and to manage its liquidity gap. An amount of R2.25 billion was to be utilized for the Reserve Based Lending facility which is a revolving credit facility secured against the producing asset of PetroSA Ghana.
ACSA
Airports Company South Africa (ACSA) is a state-owned company (74.6% owned by the South African Government through the Department of Transport, while the Public Investment Corporation SOC Ltd owns 20.0%, Empowerment Investors hold 4.21%, and Staff through the Employee Share Option Scheme the remaining 1.19%). The company is legally and financially autonomous and operates under commercial law. ACSA is mandated to own and operate South Africa’s nine principal airports, including the three major international airports at Johannesburg, Cape Town and Durban (King Shaka). As a result, ACSA is responsible for processing approximately 90.0% of all passengers departing on commercial airlines from airports within South Africa. ACSA has a 30-year concession and a 20-year concession to develop, operate and maintain the Mumbai and Guarulhos International Airports respectively. ACSA earns consultancy fees and return on equity from these investments.
The ACSA Group derives revenue from two streams, aeronautical and non-aeronautical revenue streams accounting for 63.0% and 37.0%, respectively, of the Group’s revenue in the 2016/17 financial year. The former is derived from regulated charges, which consists of aircraft landing and parking charges, and passenger service charges. The non-aeronautical income is derived from commercial undertakings including retail operations, car rental concessions, property leases, car parking, hotel operations and advertising. Another component of non‑aeronautical revenue is generated from international operations. The company aims to increase its non‑aeronautical revenue from the current 37.0% of total revenue to 48.0% in the medium term. ACSA, in partnership with the Brazilian company, Invepar, was successful in a bid to manage the development, maintenance and operation of Guarulhos International Airport in Sao Paulo, Brazil. The consortium owns 51.0% of the airport concession, with 49.0% being held by Infraero, the current airport operator. ACSA owns 20.0% of the consortium with Invepar. Recently ACSA and Munich Airport have established a partnership aimed at sharing knowledge and experiences.
ACSA’s revenue grew by 3.0% to R8.6 billion (2016: R8.3 billion), this was driven by a 3.0% increase in non-aeronautical revenue and an aeronautical growth of 4.0%. ACSA experienced a 3.0% increase in departing passenger numbers from 19.4 million to 20 million in the current year, despite the moderate economic climate and weak growth rate experienced in South Africa. ACSA’s net profit for the year amounted to R2 billion, 5.0% growth from the prior year profit of R1.9 billion. There was a reduction in finance costs due to the early debt redemption strategy (EDR) to settle interest-bearing debt.
The balance sheet of the company remains in good shape with net equity of R19 billion (2016: 17 billion). ACSA’s liquidity position improved to 1.9 times in the 2016/17 financial year from 1.0 times in 2016 as a result of their increased repayment strategy. The interest cover ratio strengthened to 2.5 times from 2.4 times in the prior year, also as a result of the increased repayment strategy.
ACSA adopted an EDR strategy that aims to negotiate with lenders the possibility of early settlement of outstanding debts given the entity’s favorable cash position, which increased by 22.0% to R1.7 billion (2016: R1.4 billion) mainly attributable to ACSA’s increased investment portfolio. The entity’s cash surpluses are invested in domestic money markets instruments and bank accounts. The entity’s corporate plan indicates that, other than funding required for specific assets, the entity does not expect to incur new borrowings to fund operational or capital expenditure as funding may be solely sourced from cash carried over from previous financial years and cash generated from operations. The entity has interest-bearing debt amounting to R9.3 billion (2016: R9.8 billion) which comprises of funding from the following sources: fixed rate bonds (53.0%), DFIs (27.0%) and inflation-linked bonds (20.0%). ACSA plans to repay R296 million during the 2017/18 financial year. The entity has redeemed approximately R7.5 billion of outstanding interest-bearing debt since the inception of the EDR strategy in 2013.
The 2016/17 capital expenditure amounted to R893 million which declined from the R1.3 billion in the prior year. ACSA’s current infrastructure program provides for the continuation of its operations, ensuring efficient refurbishment and replacement of existing infrastructure. There are no major capital investment programs to increase or add new capacity planned until at least 2016/17, owing to adequate capacity.
SANRAL
SANRAL is responsible for the planning, design, construction, rehabilitation and maintenance of South Africa’s national road network to support socio-economic development. The national road system connects all the major centers in the country to each other and to neighboring countries. The South African road network comprises approximately 754,600 kilometers of roads, of which 21,403 kilometers is the national road network. The national highway network currently consists of 16,170 kilometers, which is expected to grow to 35,000 kilometers. South Africa has the longest road network of any country in Africa.
In accordance with the SANRAL Act (1998), the agency is responsible for toll and non-toll roads. These operations are funded separately. Non-toll roads are funded by government allocations, and are not allowed to be cross-subsidized from toll road income, and vice versa. Toll operations can be divided into two types – those funded by SANRAL itself and operated on its behalf, and roads concessioned to private parties under public‑private partnerships. Hence SANRAL’s revenue comes from two primary sources: grants from the National Government for all non-toll roads, and the tolling revenue received from toll roads.
SANRAL awarded 172 contracts worth over R15.9 billion for new works, rehabilitation and improvement, periodic and special maintenance, routine maintenance, community development and other activities during the year ended March 31, 2017. SMMEs earned a total of R4 billion through contracts with SANRAL, more than R2.1 billion of which went to 1,045 blacked-owned enterprises. SANRAL’s skills development program trained 4,257 people, including 1,690 women. SANRAL projects created the equivalent of 19,047 full-time jobs, 11,242 of which were taken up by young people.
SANRAL’s creditworthiness is rated and published by Moody’s Investor Service. SANRAL’s international rating was downgraded in September 2013 to Baa3 (long-term) and P-3 (short-term) with a negative outlook. The downgrade was a result of uncertainty and resistance to the implementation of electronic tolling (e-tolling) on the Gauteng network. On June 27, 2014, this outlook improved to “stable”, however, this was not sustained. In January 2015, the establishment of the e-toll review panel resulted in the outlook being dropped to negative. Following the outcome of the work of the review panel, the Deputy President has since announced the new e-toll dispensation which is currently being implemented, but this is not yet reflected in the entity’s credit rating. In September 2016, Moody’s placed SANRAL’s credit rating on review for downgrade due to deterioration of the Gauteng Freeway Improvement Project (GFIP) cash flows and rising funding challenges.
SANRAL’s debt stock amounted to R48.75 billion (2016: R48.85 billion) as at the end of the 2017 financial year. The marginal decrease in the entity’s borrowings was partially attributable to SANRAL’s reduced ability to raise funding through the debt capital market. Although this is the case, funding through the debt capital markets remained the main source of financing for the entity. Capital market debt funding accounted for 96.0% of total debt funding facilities as at March 31, 2017. During the 2016/17 financial year, R0.78 billion was raised through issuing bonds under the Domestic Medium Term Note program and these funds were used for toll operations. SANRAL is expected to redeem an unguaranteed bond maturing in November 2018.
Trans-Caledon Tunnel Authority (TCTA)
The TCTA was established in 1986. The entity is a specialized liability management entity responsible for bulk raw water infrastructure development. TCTA was originally established to implement a single project, the Lesotho Highlands Water Project (LHWP). In March 2000, TCTA’s notice of establishment was amended to allow for the Minister of Water Affairs (now Minister of Water and Sanitation) to issue directives to TCTA in terms of the National Water Act and the entity has since evolved into being responsible for multiple projects. To date the following directives have been received:
| · | Lesotho Highlands Water Project – Delivery tunnel and subsequently fulfillment of the Republic’s financial obligations arising from its treaty with Lesotho signed in 1986 (includes both Phase 1 and Phase 2); |
| · | Advisory services to Umgeni Water, Water Management Institutions, Water Boards and the Department of Water and Sanitation (DWS); |
| · | Berg Water Project (BWP); |
| · | Vaal River Eastern Subsystem Project (VRESAP); |
| · | Refurbishment of Mooi-Mgeni Transfer Scheme Phase 1* (MMTS1) and implementation of Phase 2* (MMTS2); |
| · | Olifants River Water Resources Development Project Phase 2C and subsequently, all the remaining phases* (ORWRDP); |
| · | Komati Water Scheme Augmentation Project (KWSAP); |
| · | Mokolo-Crocodile Water Augmentation Project Phases 1 and 2 * (MCWAP 1 and MCWAP 2); |
| · | Metsi Bophelo Borehole Project; |
| · | Short term solution to Acid Mine Drainage* (AMD); |
| · | Coordination of Strategic Infrastructure Projects 3 and 18* (SIP3 and 18); |
| · | Mzimvubu Water Project; and |
| · | Off-take to the town of Kriel from the Komati Water Supply Augmentation Project. |
Implementation of these projects is still on-going
In 2014, the initial R25 billion guarantees provided for LHWP Phase 1 were extended to cover the activities of LHWP Phase 2 and the short-term solution to Acid Mine Drainage (AMD) in the Vaal River area. Commercial funding for the rest of the projects is secured on the basis of income agreements between TCTA and DWS and these agreements determine how costs may be recovered on each project.
Lesotho Highlands Water Project (LHWP): in the past year, TCTA activities included the ongoing management of debt relating to the LHWP, as well as fulfilment of the associated financial obligations of the Government of the Republic of South Africa to the Kingdom of Lesotho. As part of preparations for Phase 2 of the LHWP, TCTA formalized its project engagements with both the Lesotho Highlands Water Commission and the Lesotho Highlands Development Authority. While there has been no need to raise additional funds for the project in 2016/17, the Lesotho Highlands Development Authority, the implementing agent in Lesotho, has made significant progress with the procurement of major engineering services for the Polihali Dam and connecting tunnel to Katse Dam. During the year, TCTA continued to undertake, according to plan, the operation and maintenance of the Outfall Tunnel North, an important element of the LHWP-1 infrastructure delivering water to South Africa.
Mokolo-Crocodile Water Augmentation Project (MCWAP): The first phase of this project, MCWAP-1 was declared to be fully operational in September 2016, moving into its one-year defects liability period, while continuing to serve as a source of sustainable water supply for industrial and domestic users in the Lephalale area in the Limpopo Province. TCTA is now making preparations for the implementation of the second phase, MCWAP-2 which will supply water meet Eskom’s environmental requirements which are part of the World Bank loan for Medupi
TCTA’s total debt for the 2017 financial year amounted to R29 billion (2016: R28 billion). This was mainly driven by an increase in short-term debt as a result of a reclassification of the WSP2 bond through switch auctions of WSP2 bonds into WSP5 bonds. The total value of bonds issued decreased from R19.14 billion in 2016 to R19.13 billion in 2017. This is primarily due to the increase in the CPI bond which was offset by the maturity of WSP04 bond in May 2016. There was also a 1.0% increase in funding utilized from commercial banks due to drawdowns on loans utilized on VRESAP and MCWAP.
As a non-profit organization, TCTA’s aggregate net cash inflows and outflows are expected to balance to nil at the end of each project, once all debt has been extinguished. Cash inflows from operating activities for the year ended March 31, 2017 were less than for the year ended March 31, 2016, mainly due to lower receipts of the revenues and recoveries from fiscally funded projects, i.e. projects where TCTA is an implementing agent for social projects on behalf of DWS. Although billing was higher than in the previous financial year due to increased volumes, the cash receipts for the year, amounting to R5 626 million, were less than the R5 783 million that was received in the previous year, as a result of delays in receiving payments from DWS. Recoveries on social projects were also lower as these projects are nearing completion. The receipts for the year included the on-budget contribution towards the Acid Mine Drainage Project amounting to R683 million TCTA continues to operate as a financially sound entity that is able to execute its projects in line with its mandate and with the Government’s development agenda.
South African Post Office (SAPO)
The SAPO State Owned Company (SOC) Act of 1958, and 2011 amendment, deals specifically with the establishment of SAPO as a state entity and corporate governance matters. SAPO is wholly-owned by the Government and its executive authority is the Department of Telecommunications and Postal Services.
The Postal Services Act of 1998 sets out the licensing requirements of SAPO as prescribed by the relevant regulatory body, the Independent Communications Authority of South Africa (ICASA). In terms of the licensing framework developed by ICASA, SAPO is the only operator licensed within the reserved market, which covers all mail under 1kg. SAPO’s license was issued in 2008. It is valid for a period of 25 years and is reviewed every three years in relation to SAPO’s performance in rolling out universal service obligations (USO) which include the rollout of postal addresses, points of presence and adherence to delivery targets. In the unreserved market, operators are required to register with ICASA, but there is no licensing framework. SAPO operates in both the reserved and unreserved market.
Lastly, the South African Postbank Limited Act, provides for the corporatization of the Postbank, which is currently a division of SAPO. The Act allows for the transfer of the Postbank division to the Postbank Company.
The Act further provides for the governance and functions of the Postbank once established as a company. In terms of the Act, SAPO will be the Postbank’s bank controlling company (BCC). The South African Reserve Bank has approved the Section 12 application to enable the establishment of the Postbank as a bank in terms of the Banks Act and the Postbank has 12 months to finalize the process.
SAPO’s current operating structure consists of:
| · | Mail: This consists of all services in the reserved market, including philately, bulk mail, envelopes and local and international letters and parcels. Mail remains SAPO’s largest revenue contributor. |
| · | Retail: This includes access to photocopying machines, third party payments and motor vehicle licensing among other things. |
| · | Logistics: This includes freight, containers and courier. |
SAPO operates an expansive network of 2,487 service points, through which its services are extended to the general public.
SAPO, like most postal operators, has been experiencing a gradual decline in standard mail volumes; this has required that the entity revise its operating structure in line with the changing requirements of the sector. In order to facilitate a turnaround at SAPO, the Minister of Telecommunications appointed an administrator to run SAPO in November 2014. The administrator was also tasked with the development of a strategic turnaround plan (STP) for SAPO.
During January 2016, a permanent Board and a Group Chief Executive Officer (GCEO) were appointed. Subsequently, a revised strategy was developed under the leadership of the GCEO, which sought to address the weaknesses in the STP previously developed by the Administrator. A rebased strategy was adopted as SAPO’s corporate strategy and had been in the process of being implemented throughout the 2016/17 financial year.
For the year ended March 31, 2017, SAPO recorded a net loss after tax of R978.2 million (2015/16: net loss R1.11 billion). SAPO continued to experience cash constraints and has not had sufficient working capital. The strike in 2014 had a negative impact on revenues. As at end of 2016/17 financial year, Government had provided SAPO with R4.44 billion in government guarantees. SAPO’s total debt as at March 2017 was R3.7 billion. SAPO had anticipated that the payment of its historical supplier obligations would restore confidence in its customers and suppliers and as a result, revenues would be restored. However, SAPO was unable to restore revenues to its pre-strike levels. This was mainly a result of customers having switched to alternative service providers or to electronic mail offerings providers and SAPO’s reduced operational capacity.
As at March 31, 2017, SAPO concluded the first phase of its voluntary severance package (VSP) offering process. SAPO’s goal was to reduce its staff compliment by 5,000 people. However, very few employees had applied for the VSP’s compared to the originally anticipated number. Despite this, the overall SAPO’s headcount has reduced by 2052 to 18 729 from 20 781 in March 2016 when considering the effect of the VSP and mostly as a result of natural attrition. The reduction in the headcount has however not been sufficient to make any substantial adjustment to SAPO’s remuneration bill.
SAPO received a R650 million equity injection from the Department of Postal and Telecommunications in April 2016 to address the cash constraints. As at March 31, 2017 the approved borrowing limits for SAPO was R4 billion (2015/16: R1.72 billion) backed by a Government guarantee worth R 4.17 billion.
Denel
Denel is a state-owned aerospace and defence company (100% owned by the South African Government through the Department of Public Enterprises). The company is legally and financially autonomous and operates under commercial law. Denel operates through several business units, including Denel Aerostructures, Denel Land systems and Denel Aviation. Denel derives revenue from local and foreign markets and the Group’s revenue declined by 2% from R8.2 billion in 2015/16 to R8.0 billion in 2016/17. This decline is mainly attributed to decreased local demand as the South African Government continues to focus on fiscal consolidation. To counter this, the Group has intensified its efforts to grow export market sales.
Denel’s net profit declined by 16% from R395 million in 2015/16 to R333 million in 2016/17. The decline in the Group’s net profit is mainly attributed to the decreased local demand, foreign exchange losses and escalating finance costs which increased by 34% from R203 million in 2015/16 to R272 million in 2016/17
Denel’s balance sheet consists of net equity of R2.6 billion (2016: R2.3 billion). The Group remains highly levered with debt of R3.3 billion.
SA Express
SA Express is a state-owned regional airline (100.0% owned by the South African Government through the Department of Public Enterprises). The company is legally and financially autonomous and operates under commercial law. SA Express operates short- and medium-haul routes connecting primary and secondary domestic and regional destinations in South Africa and neighboring countries.
As of the latest available financial statements, SA Express derives revenue from passenger ticket sales and cargo transport services. SA Express’ revenue increased by 1.0% to R2.5 billion for the 2014/15 fiscal year (2013/14: R2.56 billion), this was driven by the increase in average prices despite the challenging global economic conditions. SA Express’ net loss for the 2014/15 year amounted to R132 million, 1,220% decline from the prior year loss of R10 million. There was an increase in finance costs due to increased borrowings.
As of the latest available financial statements, the balance sheet of the company consists of net equity of R56 million (2014: R188 million). SA Express’ liquidity position decreased to 0.60 times in the 2014/15 financial year from 0.80 times in 2013/14 as a result of faster increases in current liabilities relative to current assets.
As of the latest available financial statements, the capital expenditure of 2014/15 amounted to R110 million from R180 million in 2013/14.
NATIONAL GOVERNMENT DEBT
General
The legal authorization for the incurrence of debt by the National Government is set forth in the PFMA. The National Treasury administers the National Government debt of South Africa. In February of each year the annual budget is tabled in Parliament, including the government’s anticipated borrowing requirements and financing strategy for the current financial year and over the medium-term period (three years). Pursuant to Section 66 of the PFMA, the Minister of Finance needs to approve each issuance of debt. The PFMA also sets out for which purposes the Minister may borrow. There is no statutory cap on the stock of debt.
In addition to its direct indebtedness, the National Government is also a guarantor of certain third-party indebtedness. South Africa has issued formal contractual guarantees of certain indebtedness, primarily on behalf of partially or wholly state-owned entities. In this document, the National Government debt does not include debt that is guaranteed by the National Government. However, the guaranteed debt is summarized in the table entitled “Outstanding National Government Guaranteed Debt”. In addition, the National Government debt does not include debts incurred by the nine Provincial Governments.
In this section, “external debt” means debt initially incurred or issued outside South Africa, regardless of the currency of denomination, and “internal debt” means debt initially incurred or issued in South Africa. “Floating debt” means debt that had a maturity at issuance of less than one year. “Funded debt” means debt that had a maturity at issuance of one year or more.
The following table summarizes the National Government debt as of March 31 in each of the years 2013 through 2017 and as of September 30, 2017.
| | | As of March 31, | | | As of September 30, | |
| | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2017 | |
| | | Rand (million) | |
| Government bonds | | | 1,038,849 | | | | 1,217,512 | | | | 1,399,409 | | | | 1,572,573 | | | | 1,731,656 | | | | 1,827,138 | |
| Treasury bills | | | 171,985 | | | | 192,206 | | | | 202,217 | | | | 209,469 | | | | 249,970 | | | | 285,105 | |
| Marketable internal debt | | | 1,210,834 | | | | 1,409,718 | | | | 1,601,626 | | | | 1,782,042 | | | | 1,981,626 | | | | 2,112,243 | |
| Non-marketable internal debt | | | 30,300 | | | | 31,381 | | | | 30,459 | | | | 37,322 | | | | 38,443 | | | | 58,605 | |
| Total internal debt | | | 1,241,134 | | | | 1,441,099 | | | | 1,632,085 | | | | 1,819,364 | | | | 2,020,069 | | | | 2,170,848 | |
Total external debt(1) | | | 124,555 | | | | 143,659 | | | | 166,831 | | | | 199,607 | | | | 212,754 | | | | 248,111 | |
| Total gross loan debt | | | 1,365,689 | | | | 1,584,758 | | | | 1,798,916 | | | | 2,018,971 | | | | 2,232,823 | | | | 2,418,959 | |
Cash balances(2) | | | (184,082 | ) | | | (205,304 | ) | | | (214,709 | ) | | | (214,332 | ) | | | (224,615 | ) | | | (231,180 | ) |
Total net loan debt(3) | | | 1,181,607 | | | | 1,379,454 | | | | 1,584,207 | | | | 1,804,638 | | | | 2,008,208 | | | | 2,187,779 | |
| GFECRA | | | (125,552 | ) | | | (177,913 | ) | | | (203,396 | ) | | | (304,653 | ) | | | (231,158 | ) | | | (231,158 | )(4) |
| As percentages of nominal GDP: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loan debt | | | 35.5 | % | | | 38.2 | % | | | 41.2 | % | | | 44.2 | % | | | 45.59 | % | | | 46.14 | % |
| External debt | | | 3.7 | % | | | 4.0 | % | | | 4.3 | % | | | 4.9 | % | | | 4.83 | % | | | 5.23 | % |
| As percentage of gross loan debt: | | | | | | | | | | | | | | | | | | | | | | | | |
| External debt | | | 9.1 | % | | | 9.1 | % | | | 9.3 | % | | | 9.9 | % | | | 9.53 | % | | | 10.26 | % |
_________________
Notes:
| (1) | Valued using the applicable foreign exchange rates as at the end of each period. |
| (2) | This represents surplus cash of the National Revenue Fund on deposit at the commercial banks and the SARB. Bank balances in foreign currencies are revaluated using the applicable exchange rates as at the end of each period. |
| (3) | The total net loan debt is calculated with due account of the bank balances of the National Revenue Fund (balances of the National Government’s accounts with the SARB and with commercial banks). |
| (4) | Represents the balance on the GFECRA on March 31, 2017. A negative balance indicates a profit and a positive balance reflects a loss. |
Sources: South African National Treasury and the SARB.
Summary of Internal National Government Debt
Total internal National Government debt as of March 31, 2017 was R2,020 billion, an increase of 11.03% over the corresponding amount of R1,819 billion as of March 31, 2016.
The following table sets forth the total internal National Government debt, divided into floating debt and funded debt, for the periods indicated.
Gross National Government Internal Debt
| | | As of March 31, | | | As of
September 30, | |
| | | 2013 | | | | 20134 | | | | 2015 | | | | 2016 | | | | 2017 | | | | 2017 | |
| | | Rand (million) | |
| Marketable securities | | | | | | | | | | | | | | | | | | | | | | | |
| Floating | | | 171,985 | | | | 192,206 | | | | 202,217 | | | | 209,469 | | | | 249,970 | | | | 285,105 | |
| Funded | | | 1,038,849 | | | | 1,217,512 | | | | 1,399,409 | | | | 1,572,573 | | | | 1,731,656 | | | | 1,827,138 | |
Total(1) | | | 1,210,834 | | | | 1,409,718 | | | | 1,601,626 | | | | 1,782,042 | | | | 1,981,626 | | | | 2,112,243 | |
| Non-marketable securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Floating | | | 18,985 | | | | 21,813 | | | | 21,370 | | | | 27,194 | | | | 27,245 | | | | 47,061 | |
| Funded | | | 11,315 | | | | 9,568 | | | | 9,089 | | | | 10,128 | | | | 11,198 | | | | 11,544 | |
Total(2) | | | 30,300 | | | | 31,381 | | | | 30,459 | | | | 37,322 | | | | 38,443 | | | | 58,605 | |
| Total internal National Government debt | | | 1,241,134 | | | | 1,441,099 | | | | 1,632,085 | | | | 1,819,364 | | | | 2,020,069 | | | | 2,170,848 | |
_________________
Notes:
| (1) | Treasury bills are classified as floating marketable securities. Government bonds are classified as funded marketable securities. |
| (2) | Borrowings from the Corporation for Public Deposits are classified as floating non-marketable securities. Retail government bonds (since May 2004), together with debt and liabilities of the former TBVC states and the Republic of Namibia that were assumed by the National Government in connection with South Africa’s transition to a constitutional democracy, are classified as funded non‑marketable securities. |
Sources: South African National Treasury and SARB.
Summary of External National Government Debt
The National Government borrows in the global market to partly finance its foreign currency commitments and to maintain a benchmark in major currencies. As part of these benchmarks, a limit of 15.0% is placed on the share of foreign currency debt as percentage of total debt. South Africa’s external National Government debt as a percentage of total debt remains low. External debt as a percentage of total gross loan debt declined marginally from 10.1% to 9.7% as of March 31, 2016 and 2017, respectively and is 10.93% as at October 30, 2017.
The following table sets forth a breakdown of National Government external debt by currency as of March 31 in each of the years 2013 through 2017 and as of September 30, 2017.
External Debt by Currency
| | | As of March 31, | | | As of
September 30, | |
| Currency in which debt is held | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2017 | |
| | | (million) | |
| Euro | | | 2,544 | | | | 1,126 | | | | 1,488 | | | | 1,383 | | | | 572 | | | | 549 | |
| Pound Sterling | | | 83 | | | | 62 | | | | 44 | | | | 26 | | | | 18 | | | | 14 | |
| Swedish Kroner | | | 4,858 | | | | 4,164 | | | | 3,469 | | | | 2,775 | | | | 2,080 | | | | 1,733 | |
| US Dollars | | | 8,768 | | | | 10,696 | | | | 11,125 | | | | 11,055 | | | | 14,622 | | | | 16,962 | |
| Yen | | | 60,800 | | | | 60,706 | | | | 60,612 | | | | 60,517 | | | | 60,423 | | | | 60,376 | |
Total (in Rand)(1) | | | 124,555 | | | | 143,659 | | | | 166,831 | | | | 199,607 | | | | 212,754 | | | | 248,111 | |
_________________
Note:
| (1) | The conversion into Rand is calculated at the exchange rate published by the SARB on the last business day of the fiscal year. |
Source: National Treasury.
In 2016/17, foreign-currency issuance increased by US$0.5 billion to US$2.5 billion compared with the 2017 Budget estimate. Foreign loans of US$2.5 billion were issued in September 2017, US$500 million more than budgeted, the additional amount will be used as prefunding to manage foreign loan redemptions of US$3.3 billion in 2019/2020.
South Africa’s ability to raise foreign debt currency on favorable terms is impacted by its credit ratings, which are subject to change. In 2016/17, South Africa maintained the investment grade credit rating assigned by all four of the solicited rating agencies, responding to recovering economic growth, adherence to the expenditure ceiling and the solid strength of the institutions despite the volatile political environment.A marked shift in sovereign ratings took place in 2017 where South Africa fell into sub-investment by two of the four solicited credit rating agencies, following the Cabinet reshuffle in March 2017 (see “Republic of South Africa—Government and Political Parties—Zuma Administration”). On April 2 and 7, 2017, both S&P Global Ratings (S&P) and Fitch Ratings (Fitch) reacted by downgrading South Africa’s sovereign credit ratings. On April 3, 2017, S&P downgraded South Africa’s foreign and local currency ratings by one notch, thus putting its foreign currency rating at ‘BB+’, which is sub-investment, and its local currency rating to ‘BBB-’ one notch above sub-investment grade and maintained the negative outlook. On the same day, Moody’s Investor Service (Moody’s) placed South Africa’s credit rating on a review for downgrade. Similar to S&P, on April 7, 2017, Fitch downgraded the county’s foreign and local credit rating by one notch to ‘BB+’, which is sub-investment, and revised the outlook to stable from negative.
On June 1, 2017, Fitch affirmed the country’s long-term foreign and local currency margin rating at ‘BB+’ and maintained the stable outlook, citing low GDP growth trends, sizeable contingent liabilities, weak business confidence and deteriorating governance in state-owned companies. On June 2, 2017, S&P affirmed South Africa’s credit rating at ‘BB+’ and maintained the negative outlook, citing that pace of economic growth remains weak posing risks to the pace of fiscal consolidation with rising contingent liabilities. On June 9, 2017, Moody’s downgraded the county’s long-term foreign currency rating to ‘Baa3’ (one notch above sub-investment grade) from ‘Baa2’, the outlook remained unchanged at negative, citing the weakening of South Africa’s institutional framework, reduced growth prospects reflecting policy uncertainty and slow progress in the structural reforms and the continued erosion of the fiscal strength due to rising public debt and contingent liabilities.
The country’s credit ratings remained under pressure following the revisions to the Medium Term Budget Policy Statement and heightened political uncertainty over the upcoming ANC elective conference in December 2017. On November 23, 2017, Fitch affirmed the credit ratings at ‘BB+’, with a stable outlook citing low growth trends, sizeable government debt and contingent liabilities and the deteriorating standards of governance in state owned companies. Nonetheless, on November 24, 2017, S&P further downgraded South Africa’s credit ratings by one notch, thus making both the local and foreign currency ratings sub-investment grade, putting the foreign currency rating at ‘BB’ (two notches below sub-investment) and the local currency rating at ‘BB+’(one notch below sub-investment) citing weak real and nominal GDP growth that has led to a further deterioration of public finances, the country’s economy had stagnated and external competitiveness has eroded and the offsetting measures that are not strong enough to stabilize public finances. The outlook was revised to stable from negative. On the same day, Moody’s placed the country’s credit rating on review for possible downgrade citing weaker growth prospect and material budgetary revenue shortfalls that have emerged alongside increased spending pressures. Moody’s ratings carry a negative outlook.
According to rating agencies, the following weaknesses present continuing pressures for the sovereign ratings of South Africa:
| · | Failure to implement fiscal consolidation measures that would impede rising government debt/GDP ratio; |
| · | Heightened risk that SOC debt will migrate to the sovereign’s balance sheet; |
| · | Slow path of economic growth rate that is exacerbated by sustained uncertainty about economic policy and governance concerns; |
| · | Rising net external debt to levels that raise concerns about the risk of financing the current account deficit should there be a sudden stop of capital inflows; and |
| · | Political interference that is reducing the strength of key institutions such as the National Treasury. |
Guaranteed Debt
In addition to its direct indebtedness, the National Government is also a guarantor of certain third-party indebtedness. The National Government has issued formal contractual guarantees in respect of certain indebtedness of wholly or partially state-owned companies.
The following table sets forth the debt guaranteed by the National Government outstanding in each of the years indicated:
Outstanding National Government Guaranteed Debt
| | | As of March 31, | |
| | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| | | Rand (million) | |
| Internal | | | 140,975 | | | | 160,784 | | | | 169,211 | | | | 187,009 | | | | 191,894 | |
External(1) | | | 39,265 | | | | 48,784 | | | | 56,682 | | | | 76,972 | | | | 98,525 | |
| Total | | | 180,240 | | | | 209,568 | | | | 225,893 | | | | 263,981 | | | | 290,419 | |
_________________
Note:
| (1) | Excludes guarantees to the Independent Power Producers and Public-Private Partnerships. |
Source: National Treasury.
The following table sets forth the National Government’s external guaranteed debt outstanding as of March 31, 2016.
Analysis of National Government External Guaranteed Debt
| | | As of March 31, 2017 | |
| Guarantees Issued on Behalf of | | ZAR | | | US Dollars | | | Euro | | | Equivalent in Rand(1) | |
| | | Amount (million) | |
| Transnet | | | 3,500 | | | | - | | | | - | | | | 3,500 | |
| Land bank | | | 1,000 | | | | - | | | | - | | | | 1,000 | |
| Telkom | | | - | | | | - | | | | 8 | | | | 108 | |
| IDC | | | - | | | | - | | | | 10 | | | | 138 | |
| Lesotho Highlands Development Authority | | | 18 | | | | - | | | | 1 | | | | 30 | |
| DBSA | | | 2,970 | | | | 18 | | | | 54 | | | | 3,977 | |
| Trans-Caledon Tunnel Authority | | | 24 | | | | - | | | | - | | | | 24 | |
| ESKOM | | | 46,074 | | | | 2,001 | | | | 1,086 | | | | 88,047 | |
Total(2) | | | 53,586 | | | | 2,019 | | | | 1,159 | | | | 96,824 | |
_________________
Note:
| (1) | Conversion of amounts into Rand have been made at the following rates: US Dollar = R14.72; Euro = R16.79. |
| (2) | Does not include guaranteed interest to the amount of R1.9 billion. |
Source: National Treasury.
Debt-Service Costs
As a percentage of the National Government expenditure, debt-service costs increased from 9.1% during fiscal year 2012/13 to 11.5% in 2016/17. As a percentage of the National Government revenue, debt-service costs increased from 11.0% during fiscal year 2012/13 to 13.7% in 2016/17. In addition, as a percentage of GDP, debt-service costs increased from 2.5% during fiscal year 2012/13 to 3.5% in 2016/17. The following table sets forth such percentages for the periods indicated.
| | | For the year ended March 31, | |
| | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | |
| Expenditure | | | 9.1 | % | | | 9.7 | % | | | 10.1 | % | | | 10.3 | % | | | 11.5 | % |
| Revenue | | | 11.0 | % | | | 11.4 | % | | | 11.9 | % | | | 12.0 | % | | | 13.7 | % |
| GDP | | | 2.6 | % | | | 2.8 | % | | | 3.0 | % | | | 3.2 | % | | | 3.5 | % |
______________
Source: National Treasury.
The aggregate amount of scheduled repayments in respect of principal and interest on the funded National Government debt outstanding as of September 30, 2017, is set forth in the table below.
| | | | | | External Debt | |
Year(1) | | Rand | | | US$ | | | EURO | | | YEN | | | GBP | | | SEK | |
| | | Amount (million) | |
| 2017 | | | 143,317 | | | | 715 | | | | 867 | | | | 2,386 | | | | 8 | | | | 829 | |
| 2018 | | | 163,408 | | | | 892 | | | | 55 | | | | 2,384 | | | | 8 | | | | 792 | |
| 2019 | | | 157,808 | | | | 767 | | | | 41 | | | | 2,381 | | | | 7 | | | | 756 | |
| 2020 | | | 166,069 | | | | 4,682 | | | | 31 | | | | 2,379 | | | | 2 | | | | 491 | |
| 2021 | | | 158,449 | | | | 980 | | | | 24 | | | | 31,807 | | | | 1 | | | | 236 | |
| 2022 | | | 138,878 | | | | 457 | | | | 18 | | | | 30,617 | | | | — | | | | — | |
| 2023 | | | 157,320 | | | | 1,428 | | | | 18 | | | | — | | | | — | | | | — | |
| 2024 | | | 169,709 | | | | 1,899 | | | | 18 | | | | — | | | | — | | | | — | |
| 2025 | | | 123,264 | | | | 329 | | | | 18 | | | | — | | | | — | | | | — | |
| 2026 | | | 144,152 | | | | 2,270 | | | | 18 | | | | — | | | | — | | | | — | |
| 2027 | | | 138,012 | | | | 1,431 | | | | 518 | | | | — | | | | — | | | | — | |
| 2028 | | | 182,977 | | | | 150 | | | | | | | | — | | | | — | | | | — | |
| 2029 | | | 65,922 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2030 | | | 161,897 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2031 | | | 153,137 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2032 | | | 119,836 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2033 | | | 57,855 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2034 | | | 120,980 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2035 | | | 80,957 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2036 | | | 124,646 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2037 | | | 121,425 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2038 | | | 66,247 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2039 | | | 26,493 | | | | 150 | | | | | | | | | | | | | | | | | |
| 2040 | | | 53,875 | | | | 150 | | | | — | | | | — | | | | — | | | | — | |
| 2041 | | | 105,683 | | | | 900 | | | | — | | | | — | | | | — | | | | — | |
| 2042 | | | 18,721 | | | | 103 | | | | — | | | | — | | | | — | | | | — | |
| 2043 | | | 42,527 | | | | 103 | | | | — | | | | — | | | | — | | | | — | |
| 2044 | | | 40,444 | | | | 103 | | | | — | | | | — | | | | — | | | | — | |
| 2045 | | | 38,361 | | | | 1,076 | | | | — | | | | — | | | | — | | | | — | |
| 2046 | | | 44,362 | | | | 50 | | | | — | | | | — | | | | — | | | | — | |
| 2047 | | | 51,634 | | | | 1,050 | | | | — | | | | — | | | | — | | | | — | |
| 2048 | | | 48,138 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| 2049 | | | 44,641 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| 2050 | | | 16,989 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| 2051 | | | 16,594 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| 2052 | | | 16,199 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total | | | 3,480,927 | | | | 21,185 | | | | 1,626 | | | | 71,954 | | | | 26 | | | | 3,103 | |
| Principal | | | 1,666,803 | | | | 13,304 | | | | 1,383 | | | | 60,517 | | | | 24 | | | | 2,773 | |
| Interest | | | 1,814,124 | | | | 7,881 | | | | 243 | | | | 11,437 | | | | 2 | | | | 330 | |
_________________
Note:
(1) Fiscal years ending March 31.
Source: National Treasury.
Debt Record
On September 1, 1985, in response to a foreign currency liquidity crisis, South Africa prohibited repayment of certain foreign indebtedness to foreign creditors, while interest payments were made as they became due. Final settlement of affected indebtedness was agreed in 1993. Other than this isolated situation, South Africa has not defaulted in the payment of principal or interest on any of its internal or external indebtedness since becoming a Republic in 1961.
Tables and Supplementary Information
Funded Internal Debt of the Republic of South Africa (Domestic Marketable Bonds – in Rand) as of December 31, 2016/March 31, 2017
| Interest Rate | | | Date of Issue | | | Maturity Date | | Nominal Amount | |
| | | | | | | | | | |
| 8.00% | | | August 13, 2004 | | | December 21, 2018 | | | 43,764,000,000 | |
| Zero Coupon | | | April 18, 1996 | | | September 30, 2019 | | | 111,799,153 | |
| 7.25% | | | June 20, 2005 | | | January 15, 2020 | | | 56,644,603,937 | |
| 6.75% | | | September 1, 2006 | | | March 31, 2021 | | | 53,374,709,007 | |
| 2.75% | | | June 17, 2010 | | | January 31, 2022 | | | 30,182,000,000 | (1) |
| 7.75% | | | June 22, 2012 | | | February 28, 2023 | | | 74,057,352,549 | |
| 5.50% | | | May 30, 2001 | | | December 7, 2023 | | | 33,207,517,477 | (1) |
| 2.00% | | | July 4, 2012 | | | January 31, 2025 | | | 34,645,000,000 | (1) |
| 10.50% | | | May 22, 1998 | | | December 21, 2025 | | | 65,682,979,393.30 | |
| 10.50% | | | May 22, 1998 | | | December 21, 2026 | | | 65,682,979,393.30 | |
| 10.50% | | | May 22, 1998 | | | December 21, 2027 | | | 65,682,979,393.30 | |
| 2.60% | | | September 27, 2007 | | | March 31, 2028 | | | 29,497,817,562 | (1) |
| 1.875% | | | July 16, 2016 | | | March 31, 2029 | | | 11,640,000,000 | (1) |
| 8.00% | | | October 4, 2013 | | | January 31, 2030 | | | 105,505,110,422 | |
| 7.00% | | | May 28, 2010 | | | February 28, 2031 | | | 105,600,041,226 | |
| 8.25% | | | June 13, 2014 | | | March 31, 2032 | | | 84,565,773,517 | |
| 3.45% | | | August 15, 2003 | | | December 7, 2033 | | | 37,266,184,999 | (1) |
| 1.88% | | | July 15, 2016 | | | March 31, 2033 | | | 18,950,000,000 | (1) |
| 8.88% | | | July 17, 2015 | | | February 28, 2035 | | | 63,140,216,032 | |
| 6.25% | | | July 21, 2006 | | | March 31, 2036 | | | 96,404,552,145 | |
| 8.50% | | | July 19, 2013 | | | January 31, 2037 | | | 104,014,639,317 | |
| 2.25% | | | July 4, 2012 | | | January 31, 2038 | | | 32,600,000,000 | (1) |
| 9.00% | | | September 11, 2015 | | | January 31, 2040 | | | 52,971,412,494 | |
| 6.50% | | | June 4, 2010 | | | February 28, 2041 | | | 89,428,856,496 | |
| 8.75% | | | July 18, 2014 | | | January 31, 2043 | | | 32,600,703,394 | |
| 8.75% | | | July 18, 2014 | | | January 31, 2044 | | | 32,600,703,394 | |
| 8.75% | | | July 18, 2014 | | | January 31, 2045 | | | 32,600,703,394 | |
| 2.50% | | | July 17, 2013 | | | March 31, 2046 | | | 34,080,000,000 | (1) |
| 8.75% | | | June 29, 2012 | | | February 28, 2047 | | | 52,708,616,965.33 | |
| 8.75% | | | June 29, 2012 | | | February 28, 2048 | | | 52,708,616,965.33 | |
| 8.75% | | | June 29,2012 | | | February 28, 2049 | | | 52,708,616,965.33 | |
| 2.50% | | | July 11, 2012 | | | December 31, 2049 | | | 14,421,666,660.67 | (1) |
| 2.50% | | | July 11, 2012 | | | December 31, 2050 | | | 14,421,666,660.67 | (1) |
| 2.50% | | | July 11, 2012 | | | December 31, 2051 | | | 14,421,666,660.67 | (1) |
| 4.50% | | | December 1, 1986 | | | Perpetual | | | 10,410 | |
| 5.00% | | | December 1, 1986 | | | Perpetual | | | 57,935 | |
| Total Funded Internal Debt | | | | | | | | | 1,687,893,553,935.39 | |
_________________
Note:
(1) Inflation-linked bonds have been revalued using the relevant “reference CPI”.
Source: National Treasury.
Floating Internal Debt of the Republic of South Africa (Treasury Bills – in Rand) As of September 30, 2017
| Interest Rate | Date of Issue | | Maturity Date | Principal Amount |
| | | | | (in Rand) |
| 0.00% | Various Dates | | On Request | 72 585 182 |
| 7.76% | October 5, 2016 | | October 4, 2017 | 1 750 000 000 |
| 7.75% | October 12, 2016 | | October 11, 2017 | 1 750 000 000 |
| 7.77% | October 19, 2016 | | October 18, 2017 | 1 750 000 000 |
| 7.76% | October 26, 2016 | | October 25, 2017 | 1 750 000 000 |
| 7.95% | November 2, 2016 | | November 1, 2017 | 1 750 000 000 |
| 7.82% | November 9, 2016 | | November 8, 2017 | 1 750 000 000 |
| 7.95% | November 16, 2016 | | November 15, 2017 | 1 750 000 000 |
| 8.00% | November 23, 2016 | | November 22, 2017 | 1 750 000 000 |
| 8.01% | November 30, 2016 | | November 29, 2017 | 1 750 000 000 |
| 7.99% | December 7, 2016 | | December 6, 2017 | 1 750 000 000 |
| 8.04% | December 14, 2016 | | December 13, 2017 | 1 700 000 000 |
| 8.15% | December 21, 2016 | | December 20, 2017 | 1 750 000 000 |
| 8.20% | December 28, 2016 | | December 27, 2017 | 1 750 000 000 |
| 8.18% | January 4, 2017 | | January 3, 2018 | 1 750 000 000 |
| 8.11% | January 4, 2017 | | October 4, 2017 | 1 860 000 000 |
| 8.02% | January 11, 2017 | | January 10, 2018 | 1 750 000 000 |
| 7.93% | January 11, 2017 | | October 11, 2017 | 1 860 000 000 |
| 7.87% | January 18, 2017 | | January 17, 2018 | 1 750 000 000 |
| 7.82% | January 18, 2017 | | October 18, 2017 | 1 860 000 000 |
| 7.82% | January 25, 2017 | | January 24, 2018 | 1 750 000 000 |
| 7.77% | January 25, 2017 | | October 25, 2017 | 1 860 000 000 |
| 7.80% | February 1, 2017 | | January 31, 2018 | 1 750 000 000 |
| 7.77% | February 1, 2017 | | November 1, 2017 | 1 860 000 000 |
| 7.78% | February 8, 2017 | | February 7, 2018 | 1 750 000 000 |
| 7.76% | February 8, 2017 | | November 8, 2017 | 1 860 000 000 |
| 7.78% | February 15, 2017 | | February 14, 2018 | 1 750 000 000 |
| 7.74% | February 15, 2017 | | November 15, 2017 | 1 860 000 000 |
| 7.70% | February 22, 2017 | | February 21, 2018 | 1 750 000 000 |
| 7.65% | February 22, 2017 | | November 22, 2017 | 1 860 000 000 |
| 7.66% | March 1, 2017 | | February 28, 2018 | 1 750 000 000 |
| 7.64% | March 1, 2017 | | November 29, 2017 | 1 860 000 000 |
| 7.64% | March 8, 2017 | | March 7, 2018 | 1 750 000 000 |
| 7.62% | March 8, 2017 | | December 6, 2017 | 1 860 000 000 |
| 7.69% | March 15, 2017 | | March 14, 2018 | 1 750 000 000 |
| 7.67% | March 15, 2017 | | December 13, 2017 | 1 860 000 000 |
| 7.58% | March 22, 2017 | | March 21, 2018 | 1 750 000 000 |
| 7.57% | March 22, 2017 | | December 20, 2017 | 1 860 000 000 |
| 7.56% | March 29, 2017 | | March 28, 2018 | 1 750 000 000 |
| 7.68% | March 29, 2017 | | December 27, 2017 | 1 860 000 000 |
| 7.86% | April 5, 2017 | | April 4, 2018 | 2 000 000 000 |
| 7.84% | April 5, 2017 | | January 3, 2018 | 2 100 000 000 |
| 7.87% | April 5, 2017 | | October 4, 2017 | 2 260 000 000 |
| 7.88% | April 12, 2017 | | April 11, 2018 | 2 000 000 000 |
| 7.89% | April 12, 2017 | | January 10, 2018 | 2 100 000 000 |
| 7.85% | April 12, 2017 | | October 11, 2017 | 2 260 000 000 |
| 7.77% | April 19, 2017 | | April 18, 2018 | 2 000 000 000 |
| 7.79% | April 19, 2017 | | January 17, 2018 | 2 100 000 000 |
| 7.77% | April 19, 2017 | | October 18, 2017 | 2 260 000 000 |
| 7.76% | April 26, 2017 | | April 25, 2018 | 2 000 000 000 |
| 7.71% | April 26, 2017 | | January 24, 2018 | 2 100 000 000 |
| 7.67% | April 26, 2017 | | October 25, 2017 | 2 260 000 000 |
| 7.77% | May 3, 2017 | | May 2, 2018 | 2 000 000 000 |
| 7.74% | May 3, 2017 | | January 31, 2018 | 2 100 000 000 |
| 7.74% | May 3, 2017 | | November 1, 2017 | 2 260 000 000 |
| 7.81% | May 10, 2017 | | May 9, 2018 | 2 000 000 000 |
| 7.78% | May 10, 2017 | | February 7, 2018 | 2 100 000 000 |
| 7.71% | May 10, 2017 | | November 8, 2017 | 2 260 000 000 |
| 7.76% | May 17, 2017 | | May 16, 2018 | 2 000 000 000 |
| 7.77% | May 17, 2017 | | February 14, 2018 | 2 100 000 000 |
| 7.71% | May 17, 2017 | | November 15, 2017 | 2 260 000 000 |
| 7.74% | May 24, 2017 | | May 23, 2018 | 2 000 000 000 |
| 7.76% | May 24, 2017 | | February 21, 2018 | 2 100 000 000 |
| 7.71% | May 24, 2017 | | November 22, 2017 | 2 260 000 000 |
| 7.62% | May 31, 2017 | | May 30, 2018 | 2 000 000 000 |
| 7.63% | May 31, 2017 | | February 28, 2018 | 2 100 000 000 |
| 7.67% | May 31, 2017 | | November 29, 2017 | 2 260 000 000 |
| 7.58% | June 7, 2017 | | June 6, 2018 | 2 000 000 000 |
| 7.63% | June 7, 2017 | | March 7, 2018 | 2 100 000 000 |
| 7.58% | June 7, 2017 | | December 6, 2017 | 2 260 000 000 |
| 7.57% | June 14, 2017 | | June 13, 2018 | 2 000 000 000 |
| 7.58% | June 14, 2017 | | March 14, 2018 | 2 100 000 000 |
| 7.51% | June 14, 2017 | | December 13, 2017 | 2 260 000 000 |
| 7.51% | June 21, 2017 | | June 20, 2018 | 2 000 000 000 |
| 7.52% | June 21, 2017 | | March 21, 2018 | 2 100 000 000 |
| 7.51% | June 21, 2017 | | December 20, 2017 | 2 260 000 000 |
| 7.49% | June 28, 2017 | | June 27, 2018 | 2 000 000 000 |
| 7.50% | June 28, 2017 | | March 28, 2018 | 2 100 000 000 |
| 7.47% | June 28, 2017 | | December 27, 2017 | 2 260 000 000 |
| 7.51% | July 5, 2017 | | July 4, 2018 | 2 000 000 000 |
| 7.50% | July 5, 2017 | | April 4, 2018 | 2 100 000 000 |
| 7.47% | July 5, 2017 | | January 3, 2018 | 2 260 000 000 |
| 7.58% | July 5, 2017 | | October 4, 2017 | 2 555 000 000 |
| 7.56% | July 12, 2017 | | July 11, 2018 | 2 000 000 000 |
| 7.60% | July 12, 2017 | | April 11, 2018 | 2 100 000 000 |
| 7.56% | July 12, 2017 | | January 10, 2018 | 2 260 000 000 |
| 7.57% | July 12, 2017 | | October 11, 2017 | 2 555 000 000 |
| 7.55% | July 19, 2017 | | July 18, 2018 | 2 000 000 000 |
| 7.56% | July 19, 2017 | | April 18, 2018 | 2 100 000 000 |
| 7.55% | July 19, 2017 | | January 17, 2018 | 2 260 000 000 |
| 7.56% | July 19, 2017 | | October 18, 2017 | 2 555 000 000 |
| 7.33% | July 26, 2017 | | July 25, 2018 | 2 000 000 000 |
| 7.31% | July 26, 2017 | | April 25, 2018 | 2 100 000 000 |
| 7.27% | July 26, 2017 | | January 24, 2018 | 2 260 000 000 |
| 7.21% | July 26, 2017 | | October 25, 2017 | 2 555 000 000 |
| 7.35% | August 2, 2017 | | August 1, 2018 | 2 300 000 000 |
| 7.36% | August 2, 2017 | | May 2, 2018 | 2 300 000 000 |
| 7.34% | August 2, 2017 | | January 31, 2018 | 2 360 000 000 |
| 7.28% | August 2, 2017 | | November 1, 2017 | 3 555 000 000 |
| 7.35% | August 9, 2017 | | August 8, 2018 | 2 300 000 000 |
| 7.37% | August 9, 2017 | | May 9, 2018 | 2 300 000 000 |
| 7.36% | August 9, 2017 | | February 7, 2018 | 2 360 000 000 |
| 7.32% | August 9, 2017 | | November 8, 2017 | 3 555 000 000 |
| 7.34% | August 16, 2017 | | August 15, 2018 | 2 300 000 000 |
| 7.38% | August 16, 2017 | | May 16, 2018 | 2 300 000 000 |
| 7.39% | August 16, 2017 | | February 14, 2018 | 2 360 000 000 |
| 7.32% | August 16, 2017 | | November 15, 2017 | 3 555 000 000 |
| 7.31% | August 23, 2017 | | August 22, 2018 | 2 300 000 000 |
| 7.34% | August 23, 2017 | | May 23, 2018 | 2 300 000 000 |
| 7.34% | August 23, 2017 | | February 21, 2018 | 2 360 000 000 |
| 7.31% | August 23, 2017 | | November 22, 2017 | 3 555 000 000 |
| 7.24% | August 30, 2017 | | August 29, 2018 | 2 500 000 000 |
| 7.28% | August 30, 2017 | | May 30, 2018 | 2 500 000 000 |
| 7.27% | August 30, 2017 | | February 28, 2018 | 2 460 000 000 |
| 7.29% | August 30, 2017 | | November 29, 2017 | 3 555 000 000 |
| 7.24% | September 6, 2017 | | September 5, 2018 | 2 500 000 000 |
| 7.28% | September 6, 2017 | | June 6, 2018 | 2 500 000 000 |
| 7.24% | September 6, 2017 | | March 7, 2018 | 2 460 000 000 |
| 7.26% | September 6, 2017 | | December 6, 2017 | 3 555 000 000 |
| 7.20% | September 13, 2017 | | September 12, 2018 | 2 500 000 000 |
| 7.24% | September 13, 2017 | | June 13, 2018 | 2 500 000 000 |
| 7.21% | September 13, 2017 | | March 14, 2018 | 2 460 000 000 |
| 7.24% | September 13, 2017 | | December 13, 2017 | 3 555 000 000 |
| 7.18% | September 20, 2017 | | September 19, 2018 | 2 500 000 000 |
| 7.22% | September 20, 2017 | | June 20, 2018 | 2 500 000 000 |
| 7.20% | September 20, 2017 | | March 21, 2018 | 2 460 000 000 |
| 7.20% | September 20, 2017 | | December 20, 2017 | 3 555 000 000 |
| 7.32% | September 27, 2017 | | September 26, 2018 | 2 500 000 000 |
| 7.37% | September 27, 2017 | | June 27, 2018 | 2 500 000 000 |
| 7.34% | September 27, 2017 | | March 28, 2018 | 2 460 000 000 |
| 7.20% | September 27, 2017 | | December 27, 2017 | 3 555 000 000 |
| | | | Total Floating Internal Debt | 285 177 585 182 |
_________________
Note:
| (1) | Excludes borrowing from the Corporation for Public Deposits to the amount of R58,075,323,689.06. |
Source: National Treasury.
Funded External Debt of the Republic of South Africa as of March 31, 2017/November 30, 2017
| Interest Rate | | Date of Issue | | Maturity Date | | Nominal Amount | |
| Capital market loans | | | | | | | |
| | | | | | | | |
| 2.50% | | February 2, 1998 | | May 20, 2021 | | ¥ | 329,280,000 | |
| 3.80% | | June 1, 2000 | | June 1, 2020 | | ¥ | 30,000,000,000 | |
| 3.80% | | June 12, 2001 | | September 7, 2021 | | ¥ | 30,000,000,000 | |
| 4.875% | | April 14, 2016 | | April 14, 2026 | | $ | 1 250,000,000 | |
| 5.875% | | May 30, 2007 | | May 30, 2022 | | $ | 1,000,000,000 | |
| 6.875% | | May 27, 2009 | | May 27, 2019 | | $ | 1,248,000,000 | |
| 6.875% | | September 4, 2009 | | May 27, 2019 | | $ | 500,000,000 | |
| 5.50% | | March 5, 2010 | | September 3, 2020 | | $ | 1,619,112,000 | |
| 6.25% | | March 8, 2011 | | March 8, 2041 | | $ | 750,000,000 | |
| 4.665% | | January 17, 2012 | | January 17, 2024 | | $ | 1,500,000,000 | |
| 5.875% | | September 16, 2013 | | September 16, 2025 | | $ | 2,000,000,000 | |
| 5.375% | | July 24, 2014 | | July 24, 2044 | | $ | 1,000,000,000 | |
| 3.750% | | July 24, 2014 | | July 24, 2026 | | € | 500,000,000 | |
| 5.0% | | October 12, 2016 | | October 12, 2046 | | $ | 1,000,000,000 | |
| 4.30% | | October 12, 2016 | | October 12,2028 | | $ | 1,367,112,000 | |
| 3.903% | | September 24, 2014 | | June 24, 2020 | | $ | 500,000,000 | |
| 4.850% | | September 27, 2017 | | September 27, 2027 | | $ | 1000,000,000 | |
| 5.650% | | September 27, 2017 | | September 27, 2047 | | $ | 1,500,000,000 | |
| | | | | | | | | |
| 7.14% CIRR Fixed | | April 17, 2000 - March 5, 2001 | | April 15, 2006 - October 15, 2018 | | $ | 620,010.98 | |
| 4.77% Commercial Fixed | | April 15, 2001 | | April 15, 2009 - October 15, 2018 | | € | 1,140,031.57 | |
| 5.15% Commercial Fixed | | April 15, 2002 - May 21, 2003 | | April 15, 2009 - October 15, 2018 | | $ | 2,807,191.92 | |
| 5.63% MC CIRR | | April 15, 2004 - July 17, 2006 | | April 15, 2009 - October 15, 2018 | | € | 3,596,930.51 | |
| 6.545% Sec-CIRR | | July 21, 2004 - July 22, 2005 | | April 15, 2009 - October 15, 2018 | | £ | 1,868,640.36 | |
| 5.50% Commercial Fixed | | July 21, 2004 | | April 15, 2009 - October 15, 2018 | | € | 2,715,999.70 | |
| 4.72% Commercial Fixed | | April 18, 2006 | | April 15, 2009 - October 15, 2018 | | € | 4,582.29 | |
| 4.23% Commercial Fixed | | December 15, 2008 | | April 15, 2009 - October 15, 2018 | | £ | 16,542.92 | |
| 4.28% Commercial Fixed | | December 4, 2008 | | April 15, 2009 - October 15, 2018 | | £ | 1,678,258.96 | |
| 4.61% Commercial Fixed | | July 31, 2008 - April 15, 2010 | | April 15, 2009 - October 15, 2018 | | £ | 996,464.77 | |
| 4.90% Commercial Fixed | | December 15, 2009 | | April 15, 2010 - October 15, 2018 | | £ | 312,553.16 | |
| 4.92% Commercial Fixed | | April 6, 2010 | | April 15, 2011 - April 15, 2020 | | £ | 694,524.46 | |
| Interest Rate | | Date of Issue | | Maturity Date | | Nominal Amount | |
| 5.10% Commercial Fixed | | December 15, 2009 - October 15, 2010 | | April 15, 2011 - April 15, 2020 | | £ | 1,172,577.00 | |
| 5.25% Commercial Fixed | | March 23, 2011 | | October 15, 2011 - April 15, 2020 | | £ | 1,038,985.55 | |
| 6.77% MC CIRR | | July 22, 2005 | | April 15, 2009 - October 15, 2018 | | £ | 11,469.13 | |
| 5.79% Commercial Fixed | | July 15, 2002 - April 15, 2004 | | April 15, 2009 - October 15, 2018 | | $ | 370,099.85 | |
| 5.97% Commercial Fixed | | October 16, 2006 | | April 15, 2009 - October 15, 2018 | | $ | 160,600.69 | |
| 5.55% Commercial Fixed | | October 15, 2003 - April 15, 2004 | | April 15, 2009 - October 15, 2018 | | $ | 3,674,314.24 | |
| 5.315% Commercial Fixed | | April 15, 2009 | | April 15, 2011 - April 15, 2020 | | $ | 45,891.75 | |
| 5.39% Commercial Fixed | | December 15, 2009 | | April 15, 2010 - October 15, 2018 | | $ | 18,866.10 | |
| 5.40% Commercial Fixed | | June 22, 2007 - August 19, 2009 | | April 15, 2009 - October 15, 2018 | | $ | 1,059,288,02 | |
| 5.16% Commercial Fixed | | June 6, 2008 - August 19, 2009 | | April 15, 2009 - October 15, 2018 | | $ | 1,625,156.88 | |
| 5.61% Commercial Fixed | | December 15, 2009 | | April 15, 2010 - October 15, 2018 | | $ | 12,296.88 | |
| 5.49% Commercial Fixed | | April 17, 2001 - July 15, 2003 | | April 15, 2009 - October 15, 2018 | | SEK | 43,726,101.11 | |
| 3.90% Commercial Fixed | | April 15, 2005 - July 22, 2005 | | April 15, 2011 - April 15, 2020 | | SEK | 43,995,204.52 | |
| 4.30% Commercial Fixed | | October 17, 2005 - January 17, 2006 | | April 15, 2011 - April 15, 2020 | | SEK | 104,605,105.12 | |
| 3.81% Commercial Fixed | | October 26, 2004 - July 22, 2005 | | April 15, 2009 - October 15, 2018 | | SEK | 52,656,726.82 | |
| 4.24% Commercial Fixed | | October 17, 2005 - January 16, 2006 | | April 15, 2009 - October 15, 2018 | | SEK | 17,973,225.94 | |
| 4.57% Commercial Fixed | | April 18, 2006 - October 16, 2006 | | April 15, 2009 - October 15, 2018 | | SEK | 21,727,779.32 | |
| 5.03% Commercial Fixed | | January 15, 2007 - April 16, 2007 | | April 15, 2009 - October 15, 2018 | | SEK | 5,720,879.73 | |
| 4.60% Commercial Fixed | | April 18, 2006 - October 16, 2006 | | April 15, 2011 - April 15, 2020 | | SEK | 315,507,013.61 | |
| 5.05% Commercial Fixed | | January 16, 2007 | | April 15, 2011 - April 15, 2020 | | SEK | 72,754,479.54 | |
| 5.60% Commercial Fixed | | June 25, 2007 | | April 15, 2011 - April 15, 2020 | | SEK | 144,212,497.24 | |
| 4.52% Commercial Fixed | | July 21, 2004 - October 17, 2005 | | April 15, 2009 - October 15, 2018 | | € | 39,615.67 | |
| 4.57% Commercial Fixed | | April 15, 2005 - January 17, 2006 | | April 15, 2011 - April 15, 2020 | | € | 8,129,574.22 | |
| 4.76% Commercial Fixed | | April 18, 2006 - July 17, 2006 | | April 15, 2011 - April 15, 2020 | | € | 13,053,735.99 | |
| 5.16% Commercial Fixed | | October 15, 2006 - April 16, 2007 | | April 15, 2009 - October 15, 2018 | | € | 963,978.94 | |
| 5.175% Commercial Fixed | | January 15, 2007 | | April 15, 2011 - April 15, 2020 | | € | 4,062,976.36 | |
| 6.28% Commercial Fixed | | October 16, 2006 - January 15, 2007 | | April 15, 2009 - October 15, 2018 | | £ | 2,250.56 | |
| 6.42% Commercial Fixed | | December 15, 2008 | | April 15, 2011 - April 15, 2020 | | $ | 3,606,638.67 | |
| 6.61% Commercial Fixed | | July 15, 2002 - April 15, 2004 | | April 15, 2009 - October 15, 2018 | | $ | 1,683,053.28 | |
| 6.65% Commercial Fixed | | June 22, 2007 | | October 15, 2010 - April 15, 2020 | | $ | 14,637,776.95 | |
| 5.89% Commercial Fixed | | October 23, 2009 - April 15, 2010 | | April 15, 2010 - October 15, 2018 | | $ | 850,124.03 | |
| 5.98% Commercial Fixed | | October 16, 2006 | | October 15, 2010 - April 15, 2020 | | $ | 6,905,533.34 | |
| 5.515% Commercial Fixed | | July 24, 2007 | | April 15, 2009 - October 15, 2018 | | € | 528,807.12 | |
| 4.93% Commercial Fixed | | April 16, 2007 | | April 15, 2009 - October 15, 2018 | | € | 193,841.47 | |
| 5.29% Commercial Fixed | | June 25, 2007 - July 24, 2007 | | April 15, 2009 - October 15, 2018 | | SEK | 7,161,067.26 | |
| 5.09% Commercial Fixed | | April 15, 2009 | | April 15, 2011 - April 15, 2020 | | $ | 70,407.65 | |
| 5.51% Commercial Fixed | | December 15, 2009 | | April 15, 2011 - April 15, 2020 | | $ | 83,950.81 | |
| 5.70% Commercial Fixed | | December 15, 2009 - April 15, 2010 | | April 15, 2010 - October 15, 2018 | | $ | 927,361.65 | |
| 5.70% Commercial Fixed | | September 15, 2009 | | April 15, 2011 - April 15, 2020 | | $ | 354,758.28 | |
| 6.50% Commercial Fixed | | April 16, 2007 | | April 15, 2009 - October 15, 2018 | | £ | 3,365.07 | |
| 5.35% Commercial Fixed | | October 17, 2011 | | April 15, 2012 - April 15, 2020 | | £ | 1,332,159.93 | |
| 5.18% Commercial Fixed | | May 15, 2007 - October 15, 2007 | | April 15, 2011 - April 15, 2020 | | € | 3,697,398.81 | |
| 6.66% Commercial Fixed | | October 15, 2007 | | April 15, 2011 - April 15, 2020 | | $ | 5,106,440.78 | |
| 6.75% Commercial Fixed | | July 31, 2008 | | April 15, 2011 - April 15, 2020 | | $ | 11,171,542.85 | |
| 6.50% Commercial Fixed | | September 16, 2008 | | April 15, 2011 - April 15, 2020 | | $ | 7,273,958.05 | |
| 7.89% Commercial Fixed | | December 15, 2009 | | April 15, 2011 - April 15, 2020 | | $ | 2,553,220.92 | |
| 5.34% Commercial Fixed | | May 15, 2007 - October 15, 2007 | | April 15, 2011 - April 15, 2020 | | SEK | 55,813,525.86 | |
| 5.64% Commercial Fixed | | October 15, 2007 | | April 15, 2011 - April 15, 2020 | | SEK | 52,087,674.45 | |
| 6.06% Commercial Fixed | | July 31, 2008 | | April 15, 2011 - April 15, 2020 | | SEK | 107,283,031.79 | |
| 5.79% Commercial Fixed | | September 16, 2008 | | April 15, 2011 - April 15, 2020 | | SEK | 73,439,142.30 | |
| 5.45% Commercial Fixed | | December 15, 2008 | | April 15, 2011 - April 15, 2020 | | SEK | 38,802,371.75 | |
| 5.50% Commercial Fixed | | July 31, 2008 - August 18, 2009 | | April 15, 2009 - October 15, 2018 | | SEK | 53,929,216.00 | |
| 5.60% Commercial Fixed | | December 15, 2009 | | April 15, 2010 - October 15, 2018 | | SEK | 392,215.63 | |
| 5.62% Commercial Fixed | | December 15, 2009 | | April 15, 2011 - April 15, 2020 | | SEK | 1,745,295.17 | |
| 5.335% Commercial Fixed | | April 15, 2009 | | April 15, 2011 - April 15, 2020 | | SEK | 1,416,717.83 | |
| 5.425% Commercial Fixed | | October 23, 2009 - April 15, 2010 | | April 15, 2011 - April 15, 2020 | | SEK | 14,837,031.82 | |
| 5.80% Commercial Fixed | | October 23, 2009 - April 15, 2010 | | April 15, 2010 - October 15, 2018 | | SEK | 29,448,600.20 | |
| 6.30% Commercial Fixed | | December 15, 2009 | | April 15, 2011 - April 15, 2020 | | SEK | 26,001,699.89 | |
| 5.475% Commercial Fixed | | May 20, 2010 - October 15, 2010 | | April 15, 2011 - April 15, 2020 | | SEK | 19,971,627.39 | |
| 5.525% Commercial Fixed | | December 13,2010 - April 16, 2012 | | October 15, 2011 - April 15, 2020 | | SEK | 22,935,798.91 | |
| 5.565% Commercial Fixed | | October 17, 2011 | | April 15, 2012 - April 15, 2020 | | SEK | 29,510,430.08 | |
| 5.595% Commercial Fixed | | December 7, 2011 - March 20, 2012 | | April 15, 2011 - April 15, 2020 | | SEK | 15,503,510.27 | |
| 5.575% Commercial Fixed | | December 13, 2010 - April 16, 2012 | | October 15, 2011 - April 15, 2020 | | $ | 1,103,239.56 | |
| 5.355% Commercial Fixed | | April 6, 2010 | | April 15, 2011 - April 15, 2020 | | $ | 713,679.09 | |
| 5.47% Commercial Fixed | | March 8, 2010 - October 15, 2010 | | April 15, 2011 - April 15, 2020 | | $ | 960,659.44 | |
| 5.58% Commercial Fixed | | April 6, 2010 | | April 15, 2011 - April 15, 2020 | | $ | 465,176.41 | |
| 5.695% Commercial Fixed | | March 8, 2010 - October 15, 2010 | | April 15, 2011 - April 15, 2020 | | $ | 626,158.34 | |
| Interest Rate | | Date of Issue | | Maturity Date | | Nominal Amount |
| 5.80% Commercial Fixed | | December 13, 2010 - April 16, 2012 | | October 15, 2011 - April 15, 2020 | $ | 719,092.21 |
| 5.905% Commercial Fixed | | October 17, 2011 | | April 15, 2012 - April 15, 2020 | $ | 925,222.42 |
| 5.68% Commercial Fixed | | October 17, 2011 | | April 15, 2012 - April 15, 2020 | $ | 1,419,487.23 |
| 5.775% Commercial Fixed | | December 7, 2011 - March 20, 2012 | | April 15, 2011 - April 15, 2020 | $ | 745,737.34 |
| 6.00% Commercial Fixed | | December 7, 2011 - March 20, 2012 | | April 15, 2011 - April 15, 2020 | $ | 486,091.20 |
| 5.43% Commercial Fixed | | December 7, 2011 - March 20, 2012 | | April 15, 2011 - April 15, 2020 | £ | 1,095,794.31 |
| 1.750% Commercial Fixed | | April 15, 2009 - September 11, 2012 | | April 15, 2011 - April 15, 2020 | $ | 723,480.75 |
| 1.158% Commercial Fixed | | April 16, 2012 | | October 15, 2012 - October 15, 2018 | € | 25,409.92 |
| 1.671% Commercial Fixed | | May 8, 2012 - September 11, 2012 | | October 15, 2012 - April 15, 2020 | £ | 435,053.36 |
| 1.525% Commercial Fixed | | May 8, 2012 - September 11, 2012 | | April 15, 2011 - April 15, 2020 | $ | 875,933.28 |
| 2.162% Commercial Fixed | | October 23, 2009 | | April 15, 2010 - October 15, 2018 | SEK | 330,144.57 |
| 2.287% Commercial Fixed | | May 8, 2012 - September 11, 2012 | | October 15, 2012 - April 15, 2020 | SEK | 12,802,928.23 |
_________________
Note:
Commercial Interest Reference Rate (CIRR). The CIRR is determined monthly by the OECD and published on the 14th day of each month. Each CIRR is fixed based on the previous 30-day treasury rate of each currency.
Source: National Treasury.
Total External Debt by Currency as of November 30, 2017
Euro…………………………………………………………………… € 538,152,882.57
Pound Sterling………………………………………………………… £ 10,658,639.54
Swedish Krone………………………………………………………… SEK 1,386,291,042.35
U.S. Dollars……………………………………………………………. $ 16,942,494,441.84
Yen………..……………………………………………………………. ¥ 60,329,280,000.00
